We have an unlimited marital deduction in the United States that applies to the estate tax. If you are married, you can bequeath money to your spouse in any amount without incurring estate tax liability.
Transfers to everyone else are potentially taxable at a maximum rate of 40%. We say “potentially” because there is a $5.34 million exclusion in 2014. Your assets must exceed this amount before the tax would kick in.
The powers that be expect to be able to collect their taxes eventually because the spouse that inherits the funds tax-free is going to have to leave them behind to someone. However, if the spouse was not a United States citizen, the IRS may never get their money. Therefore, the unlimited marital deduction is not available when you are a United States citizen who is married to someone who is a citizen of another country.
However, there is a step that you can take to gain tax efficiency under these circumstances: the creation of a qualified domestic trust.
There are some strict regulations governing these trusts that are largely intended to make sure that assets conveyed into the trust and control of these assets remain in this country.
However, if the qualified domestic trust is properly created, the surviving spouse may act as the beneficiary. The trustee can make distributions to the beneficiary from the trust’s earnings. While these distributions are subject to regular income taxes, the estate tax is not imposed on the asset transfers between the trust and the beneficiary.