Can Non-Citizens Qualify for New Jersey Estate and Death Tax Exemption

Can Non-Citizens Qualify for New Jersey Estate and Death Tax Exemption

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning Attorney

 

Recently I reviewed a will for a married couple, both are non-citizens. While the federal statute is clear on estate tax exclusion and marital deduction for non-citizens, there are no NJ statutes on point.

There are two issues present (1) is a non-citizen is entitled to the $675,000 NJ exclusion and (2) if a transfer from a non-citizen decedent to a non-citizen surviving spouse will be exempt from NJ estate tax under the marital deduction?

Simply stated for the NJ Inheritance Tax there is no citizenship requirement for the martial deduction. For the NJ Estate Tax – the 2001 Federal estate tax law and exemptions. Let me explain the marital deduction rules a bit more.

A marital deduction is not allowed when property is transferred to a non-US citizen spouse. However, an exception to this rule is available through the use of a qualified domestic trust (“QDOT”). The marital deduction is allowed for transfers to a surviving spouse who is not a US citizen if the property passes to the surviving spouse in a QDOT, or if such property is transferred or irrevocably assigned to a QDOT before the decedent’s estate tax return is filed (Code Sec. 2056(d)(2).

A QDOT is any trust:
(1) that requires at least one trustee to be either an individual who is a US citizen or a domestic corporation;
(2) that requires that no distribution of principal from the trust can be made unless such a trustee has the right to withhold from the distribution the tax imposed on the QDOT;
(3) that meets the requirements of any applicable regulations; and
(4) for which the executor has made an election on the decedent’s estate tax return (Code Sec. 2056(a)).

Note that the QDOT rules can be avoided if the non-US citizen surviving spouse:
(1) becomes a US citizen before the day the estate tax return is filed; and
(2) was a resident of the United States at all times after the date of the decedent’s death and before becoming a US citizen (Code Sec. 2056(d)(4); Reg. Sec. 20.2056A-1(b).

There you have it.

To discuss your NJ Estate Planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.