How is joint property counted in an estate when a spouse is not a U.S. citizen?
Key takeaway
For a U.S. estate, joint property held with a surviving spouse who is not a U.S. citizen is not treated under the qualified joint interest rule. Practitioners describe the property as generally included in the estate of the spouse who paid for it. For an owner of a business, real estate, or private investments, the funding and ownership details matter to how the property is counted.
How federal reporting treats the joint interest
Federal estate tax guidance excludes property held jointly with a surviving spouse who is not a U.S. citizen from qualified joint interest treatment under Section 2040(b). The interest is reported in Part II of Schedule E.
Funding and ownership details matter
Practitioners say the usual presumption that each spouse owns half of jointly owned property does not apply to a noncitizen spouse. The spouse's own money or earnings contributed to the property must be traced under that account.
Citizenship and domicile can affect the analysis, as can green card or long-term U.S. residence status, an estate tax treaty, marital property agreements, and the location and legal ownership of foreign assets. Practitioners identify these as factors that may change the result.
A surviving noncitizen spouse and inherited assets
The unlimited marital deduction does not apply when a citizen spouse dies first and leaves assets to a noncitizen spouse, according to practitioners. Practitioners identify a qualified domestic trust, or QDOT, as one way to address that limitation.
Foreign marital property agreements are described in practitioner commentary as respected in the United States for property and tax purposes. Their relevance appears among the factors that may affect how jointly held property is treated.