If you die first, your wife pays

The logic makes sense, even if it feels harsh in individual cases. The marital deduction defers the tax until the second spouse dies. That only works if the US government can actually tax that second death.

With a non-US spouse, that is not guaranteed. They could take the assets and move to another country, out of reach.

So the deduction is only available if the assets stay in a structure that secures access. That structure is called a qualified domestic trust.

Put simply: the assets do not pass directly to the surviving spouse but into a trust that meets certain requirements. At least one trustee must be a US person, and that trustee must be able to withhold tax.

The surviving spouse receives the ongoing income, as a rule tax-free. If principal is withdrawn, however, the estate tax deferred at the first death becomes due. The same applies when the second spouse dies.

So the trust is not a tax avoidance tool. It is a deferral tool with security attached.

The new rules update outdated references and procedures. That sounds technical, and it is, but there is a practical core: the requirements for securing the tax claim are brought in line with today's administrative practice.

For existing trusts, this usually means: have the trust instrument checked against the current requirements. For new ones: draft them under the current version.

If you have one of these trusts, don't put it off. An instrument that falls short of the requirements puts at risk the very effect it was set up for.

One: the trust. It can be set up in the will or created later, in certain situations even after the death, within a deadline. That is the lifeline for families who didn't think of it beforehand.

Two: naturalization of the surviving spouse. If it takes effect before the estate tax return is filed and other conditions are met, the unlimited deduction applies after all. It is a narrow window, but it exists.

Three: planning during your lifetime. Gifts to non-US spouses have their own annual exclusion, adjusted every year and much higher than the general gift exclusion. Use it over twenty years and you move substantial assets without triggering any tax.

The third option is the most elegant and the only one that needs time. Start at sixty and you can move little. Start at forty and you can move a great deal.

A German couple has lived in California for fifteen years. He became a citizen because it made things easier for his company. She kept her German passport because she saw no reason to switch.

Joint assets: a paid-off house, a brokerage account, shares in his company. Together, a high seven-figure sum.

If he dies first without any planning, nothing passes to her tax-free. The unlimited marital deduction does not apply because she is not a US citizen.

Neither of them knew. Both had wills, drawn up by a good local attorney who never asked which passport the wife held.

It can be fixed, and easily so while both are alive. Nobody noticed simply because the question was never asked.

Check which passport everyone in your family holds. It sounds trivial, and it is the starting point for all the planning.

Check where your assets are. US assets, European assets, and everything US law treats as American even if it doesn't feel that way. Shares in US companies and US real estate are part of it.

Check whether your will even knows the question. A will that assumes the marital deduction without mentioning citizenship was written without this question in mind.

And check the exemptions. In US estate taxation, the gap between a resident and a nonresident is so large that it decides millions.

If you want to set this up properly once and for all, talk to Mount Bonnell Advisors in Austin, Texas. This question costs one conversation and regularly saves six-figure sums.

It is worth putting the numbers side by side, because they show the heart of the problem.

If you are a US resident or citizen, your estate and gift tax exemption runs into the tens of millions. For the vast majority of families, that means: no tax.

If you are a nonresident, your exemption for US assets is $60,000. Not millions. Sixty thousand.

That hits every European with a vacation home in Florida, an account with a US broker or shares in a US company. When they die, the value above this exemption is subject to US estate tax, at rates that quickly reach forty percent.

So here is the most important point for every European with US assets: how you hold those assets decides more money than how they perform.

The structure of your US assets. A property held directly is not the same as one held through a company, and the differences in estate taxation are significant.

The order of deaths. It sounds morbid, and it is the core of all estate planning. Who dies first decides the outcome, and good planning works in both directions.

The wills on both sides. A European will and a US will can cancel each other out if they are not coordinated. It is one of the most common mistakes for families with assets in two countries.

And the powers of attorney. A power of attorney from your home country is generally not accepted by US hospitals and banks. If you live here, you need US documents, and you need them before you need them.

Because nobody likes talking about it, and because there is no natural occasion. You form a company because you have plans. You take out insurance because you move in. You talk about your estate when someone points you to it.

That is why, in our consultations, this topic is almost always a side question that turns out to be the main one. A client comes in to form a company, and during the conversation it turns out he owns a house in Florida, his wife kept her German citizenship and his will dates from 2009.

The advice is always the same: sort out the structure first, then form the company. A company formed into a disorganized financial situation doesn't make things better, it makes them more complicated.

And if you're thinking this doesn't apply to you because your assets are modest: a house in Florida that cost $200,000 twenty years ago may well be worth three times that today. The $60,000 exemption for nonresidents has stayed the same.

Every family in which one spouse is a US citizen or permanent resident and the other is not, and where real assets are involved.

It affects more people than you might think. The German entrepreneur married to an American. The emigrant who became a US citizen while her husband kept his German passport. The couple who have lived in Florida for twenty years, where only one of them ever applied.

And it matters at amounts far lower than many people assume. For people who are not resident in the United States, the exemption on American assets is extraordinarily low, while for residents it runs into the tens of millions.

So if you own an American house, an American brokerage account or shares in an American company and you are not resident there, you should know this number. It is the most unpleasant one in all of American tax law.

Estate planning is the only kind of advice whose outcome you never live to see. That is exactly why people put it off, and exactly why it is the only one where putting it off makes the outcome irreversibly worse.

Two hours with someone who knows both legal systems will, in many cases, save your family more money and more conflict than you earn in a year.

Consultation & implementation

If you'd like to find out what this means for your own situation, the best step is to book a consultation.