US Gift and Estate Tax Basics: Asset Transfer Planning for Immigrant Families

For immigrant families building a life in the United States, understanding the US gift and estate tax system is not merely a matter of compliance—it is a critical component of long-term wealth preservation. Unlike many other countries, the US imposes a federal tax on transfers of wealth made during life (gift tax) and at death (estate tax), with a unified lifetime exemption that, as of 2025, stands at $13.99 million per individual (IRS, 2025, Revenue Procedure 2024-40). This means a single person can transfer up to that amount without incurring federal gift or estate tax, while married couples who are both US citizens can effectively double that shield to $27.98 million through portability. However, the landscape is far more complex for non-citizen spouses and green card holders. The IRS rules treat “resident aliens” (those with a green card or meeting the substantial presence test) identically to US citizens for estate and gift tax purposes, but non-resident non-citizens (NRNCs) face a drastically lower exemption—only $60,000 for estate tax, as codified under IRC Section 2106. This disparity creates urgent planning needs for international families who hold assets in the US or intend to pass them to US-based heirs.

The Unified Credit and Lifetime Exemption

The cornerstone of US transfer tax planning is the unified credit, which offsets the tax on cumulative lifetime gifts and the estate at death. For 2025, the basic exclusion amount (BEA) is $13.99 million per person, indexed for inflation. This figure is scheduled to sunset on December 31, 2025, reverting to roughly $7 million per person (adjusted for inflation) under the Tax Cuts and Jobs Act of 2017 unless Congress acts.

Gift tax is generally paid by the donor, not the recipient. Annual gifts up to $18,000 per recipient (2025 figure, per IRS Rev. Proc. 2024-40) are excluded from the lifetime exemption through the annual exclusion. Married couples can “split” gifts, effectively doubling the annual exclusion to $36,000 per recipient. Gifts exceeding this amount eat into the lifetime exemption but do not trigger an immediate tax bill until the exemption is exhausted.

Key planning point: For green card holders, any gift made while a US resident (even before obtaining citizenship) counts against the unified credit. A gift of a foreign business interest or real estate can inadvertently trigger US gift tax liability if the fair market value exceeds the annual exclusion.

Portability Between Spouses

Portability allows a surviving spouse to use the deceased spouse’s unused exclusion amount (DSUEA). If one spouse dies without using their full $13.99 million exemption, the survivor can add that amount to their own exemption, potentially shielding up to $27.98 million from estate tax.

However, portability is not automatic. The executor must file Form 706 (US Estate Tax Return) within nine months of death (with a six-month extension available) to elect portability, even if no tax is owed. Failure to file means the DSUEA is permanently lost. For immigrant families with a non-citizen spouse, portability is not available—the marital deduction for non-citizen spouses requires a Qualified Domestic Trust (QDOT) instead.

Practical tip: Keep a copy of the deceased spouse’s Form 706 and the estate tax closing letter. The IRS allows the surviving spouse to claim the DSUEA on their own estate return, but the documentation must be defensible.

Non-Citizen Spouse and the QDOT

The marital deduction—which allows unlimited tax-free transfers between US citizen spouses—does not apply when the surviving spouse is not a US citizen. Instead, the IRS requires a Qualified Domestic Trust (QDOT) to defer estate tax on assets passing to a non-citizen spouse.

A QDOT must have at least one US trustee, and the trust must meet specific requirements under IRC Section 2056A. Distributions of principal to the non-citizen spouse are subject to estate tax at the time of distribution (unless made for hardship). Income distributions, however, are generally tax-free. The QDOT effectively delays the estate tax until the surviving spouse dies or receives principal.

Key numbers: The QDOT must have a value of at least $2 million (if the trust assets exceed that threshold) to require a US bank or trust company as trustee, or the trustee must post a bond equal to 65% of the trust’s value. For immigrant families with significant assets, the QDOT is a mandatory structure, not an option.

Gift Tax Rules for Non-Citizens

Non-resident non-citizens (NRNCs) are subject to US gift tax only on tangible property located in the US (e.g., real estate, physical art, cars). Intangible property—such as stocks, bonds, and bank accounts—is exempt from gift tax for NRNCs under IRC Section 2501(a)(2). This creates a significant planning opportunity: a non-resident can gift US stocks or mutual fund shares to a US-resident family member without triggering US gift tax.

Green card holders, however, are treated as US residents for gift tax purposes from the moment they obtain lawful permanent residence. All worldwide gifts—including foreign real estate, foreign bank accounts, and business interests—are subject to US gift tax rules. A green card holder who gives a $500,000 apartment in Shanghai to their child must report the gift and apply their lifetime exemption.

Annual exclusion for non-citizen spouses: Gifts to a non-citizen spouse are limited to $185,000 per year (2025 figure, IRS Rev. Proc. 2024-40), indexed for inflation, without using the lifetime exemption. This is substantially higher than the $18,000 annual exclusion for gifts to other individuals.

Estate Tax for Non-Residents

Non-resident non-citizens (NRNCs) face a starkly different estate tax regime. The estate tax exemption for NRNCs is only $60,000 (IRC Section 2106), meaning any US-situs assets above that threshold are taxed at rates starting at 18% and reaching 40%. US-situs assets include real estate located in the US, tangible personal property physically in the US, and stocks of US corporations (even if held in foreign brokerage accounts).

Critical distinction: Bank deposits held in US banks by NRNCs are generally excluded from the US estate tax (IRC Section 2105(b)), provided they are not effectively connected with a US trade or business. However, money market funds and certificates of deposit may be treated differently.

For international families, this means a non-resident parent who owns a US vacation home worth $1 million could face an estate tax bill of approximately $345,800 on the portion exceeding the $60,000 exemption. Planning strategies include holding US real estate through a foreign corporation or a properly structured trust to avoid direct ownership.

Generation-Skipping Transfer (GST) Tax

The GST tax applies when a transfer skips a generation—for example, a grandparent leaving assets directly to a grandchild, bypassing the parent. The GST tax rate is equal to the maximum estate tax rate (40% in 2025), and the exemption amount is the same as the unified credit ($13.99 million in 2025).

For immigrant families: The GST tax can be particularly relevant when grandparents want to fund education or a down payment for grandchildren. Without proper planning, a direct gift to a grandchild could trigger both gift tax and GST tax on the same transfer. Using a GST-exempt trust allows the assets to grow tax-free for multiple generations.

State-level considerations: Some states (e.g., Washington, Oregon, Massachusetts, New York) impose their own estate or inheritance taxes with lower exemptions. A Washington resident with a $5 million estate may owe no federal estate tax but could face a state estate tax bill of approximately $200,000. Immigrant families should factor in state-level exposure when choosing a primary residence.

Practical Planning Strategies for Immigrant Families

Annual exclusion gifting: Maximize the $18,000 per-recipient annual exclusion (or $36,000 for married couples splitting gifts) each year. Over 10 years, a couple can transfer $360,000 to a single child without using any lifetime exemption.

Life insurance trusts: An irrevocable life insurance trust (ILIT) removes life insurance proceeds from the estate, providing tax-free liquidity to heirs. For immigrant families, this can be especially valuable if the estate includes illiquid assets like a family business or foreign real estate.

Grantor retained annuity trusts (GRATs): A GRAT allows the grantor to transfer asset appreciation to beneficiaries with minimal gift tax cost. If the assets outperform the IRS’s assumed interest rate (the Section 7520 rate, which in February 2025 was approximately 5.2%), the excess passes to heirs gift-tax-free.

Foreign grantor trusts: For non-resident families, a foreign grantor trust can hold US assets without triggering US estate tax on the grantor’s death, provided the trust is structured correctly. This is a specialized area requiring cross-border tax counsel.

For families managing cross-border tuition payments or regular transfers to relatives, some international households use platforms like Airwallex global account to handle multi-currency transfers with competitive exchange rates, though this does not replace formal estate planning.

FAQ

Q1: Do I need to file a US gift tax return if I give money to my parents in China?

If you are a US citizen or green card holder, you must file Form 709 (US Gift Tax Return) for any gift exceeding $18,000 per recipient per year (2025 limit), regardless of where the recipient lives. Gifts to non-US persons are treated the same as gifts to US persons. However, funds used to pay for someone’s medical expenses or tuition directly to the institution are exempt from gift tax (and do not count against the annual exclusion) if paid directly to the provider.

Q2: What happens to my US estate tax exemption if I move back to my home country?

If you surrender your green card or fail the substantial presence test, you become a non-resident non-citizen for estate tax purposes. Your exemption drops from $13.99 million to $60,000 for US-situs assets. Any US real estate, stocks of US corporations, or tangible property located in the US becomes potentially taxable. You should consider selling or restructuring US assets before relinquishing residency.

Q3: Can my non-citizen spouse inherit my IRA without triggering immediate taxes?

A non-citizen spouse can inherit an IRA as a beneficiary, but the rules differ from those for citizen spouses. The non-citizen spouse typically cannot treat the IRA as their own (spousal rollover) unless they become a US citizen by the date the estate tax return is due. Instead, they must take required minimum distributions (RMDs) based on their life expectancy under the SECURE Act’s 10-year rule for non-eligible designated beneficiaries. A QDOT can hold the IRA, but distributions of principal are subject to estate tax.

References

• IRS 2025, Revenue Procedure 2024-40 (annual exclusion and exemption amounts)
• Internal Revenue Code Sections 2001, 2010, 2056A, 2106, 2501, 2503, 2601
• Tax Cuts and Jobs Act of 2017 (Public Law 115-97), sunset provisions scheduled for December 31, 2025
• IRS Form 706 and Form 709 Instructions, 2024 editions
• UNILINK International Education & Migration database, 2024 cross-border wealth planning reference