If one or both spouses are non-U.S. Citizens or Resident Aliens, they need to be aware that they have different estate tax treatment from U.S. Citizens.

U.S. Citizen spouses have an unlimited Marital Deduction on transfers to each other for Gift and Estate Tax purposes.  Transfers to Non-U.S. Citizen spouses are limited to the annual gift tax exemption for lifetime transfers and the Unified Credit for death transfers.  Because of this limitation, the annual gift tax exemption is greatly increased for these lifetime transfers, $124,000 as of 2008.

The primary purpose in not allowing an unlimited Marital Deduction for non-U.S. Citizens is the government's concern that a non-Citizen spouse inherit a large estate and leave the country prior to the payment of any estate tax.

This result can be avoided through the use of a Qualified Domestic Trust ("QDOT").  An unlimited Marital Deduction will be allowed with the use of this trust.  A QDOT provides that if the non-Citizen spouse is the survivor, there will be at least one trustee that is a U.S. Citizen or U.S. Company.  The trust further authorizes the U.S. Trustee to withhold potential taxes.  With a QDOT, non-Citizen Spouses are afforded the same unlimited Marital Deduction available to U.S. Citizen spouses.