When a U.S. citizen or permanent resident dies, assets that exceed the applicable exclusion amount, or unified credit amount, are subject to federal estate taxes. Amounts in excess of that exclusion amount can be taxed as high as 55%. Generally, for the estates of U.S. citizens and permanent residents, all worldwide assets are included in computing the taxable estate.
As a basic rule, U.S. gift and estate tax laws permit unlimited tax-free transfers of property between spouses if the recipient is a U.S. citizen. These transfers are authorized by marital deduction under applicable U.S. gift tax and estate tax laws. Assets that are transferred during lifetime or that pass to a U.S. citizen spouse at death can generally qualify for an unlimited marital deduction, which defers any estate tax until the surviving spouse’s death.
It is very important to know that the marital deduction is not allowed if the spouse receiving property is not a U.S. citizen, even if he or she is a permanent resident of the United States. Estate Planning between a US citizen and non US citizen, or an estate plan wherein neither spouse is a US citizen can be complex.