Estate Planning for Green Card Holders: Taxes, Trusts, and Spouses

Estate planning for green card holders runs on a different set of rules than estate planning for U.S. citizens, and the differences are large enough to cost a family millions if they’re missed. The federal estate tax exemption for 2026 is $15 million per person, but a permanent resident whose U.S. ties are thin enough to be classified as a non-domiciliary gets an effective exemption of just $60,000 on U.S.-situated assets.¹ On top of that, the unlimited marital deduction that lets citizen couples pass everything to each other tax-free disappears the moment the surviving spouse is a non-citizen, even one with a green card. A workable plan for a permanent resident has to solve for both problems, plus a set of cross-border complications that citizens never face.

Domicile Decides Which Tax Regime Applies to You

A green card makes you a lawful permanent resident for immigration purposes, but the IRS uses a separate concept — domicile — to decide how your estate is taxed. Domicile means living in the United States with no present intention of leaving.² It is a fact-specific test. The IRS looks at where you spend your time, where your family lives, where you vote, where your bank accounts are, and whether you maintain a home abroad. Two people with identical green cards can land on opposite sides of the line.

If you are a U.S. domiciliary, your worldwide estate is taxed the same way a citizen’s is. If you are a non-domiciliary, only assets physically located in the United States are exposed — U.S. real property, tangible personal property here, and certain U.S. securities.¹ Once you establish U.S. domicile, you keep it until you affirmatively establish domicile somewhere else. Traveling abroad or keeping a vacation home overseas is not enough to break it.²

This classification is the first thing to nail down, because every number that follows depends on it.

Which Exemptions Apply to You

For 2026, the federal estate and gift tax exemption for a domiciliary is $15 million per individual. That figure comes from the One Big Beautiful Bill Act, signed on July 4, 2025, which raised the exemption and made it permanent with inflation adjustments starting in 2027.³ A married couple who are both domiciliaries can shelter a combined $30 million. The exemption is unified, covering lifetime gifts and assets left at death. Anything above it is taxed at rates up to 40%.⁴

Non-domiciliaries get $60,000, and it isn’t indexed for inflation.¹ Even a modest U.S. home clears that threshold. The result is a real tax bill on U.S.-situated assets that most people don’t see coming.

The annual gift tax exclusion for 2026 is $19,000 per recipient. You can give up to that amount to as many people as you want each year without filing a return or using any of your lifetime exemption.⁵ For green card holders with family abroad, steady annual gifting is one of the simplest ways to move wealth out of a future taxable estate.

The Non-Citizen Spouse Problem

When both spouses are U.S. citizens, one can leave the other unlimited assets tax-free. That unlimited marital deduction vanishes the moment the surviving spouse is a non-citizen, even a longtime green card holder.⁶ The only way to preserve the deduction is to route the assets through a Qualified Domestic Trust.

The same limitation hits lifetime gifts between spouses. Under federal law, the gift tax marital deduction is denied when the recipient spouse is not a citizen.⁷ In its place, the IRS provides a special annual exclusion of $194,000 for 2026 for outright gifts to a non-citizen spouse.⁸ More generous than the $19,000 standard exclusion, but still a hard cap. A citizen couple can retitle a $2 million house without a second thought; a mixed-status couple has to plan around this limit or spread transfers over several years.

One statutory workaround exists. If the non-citizen surviving spouse becomes a U.S. citizen before the estate tax return is due, and was a U.S. resident at all times between the death and naturalization, the full marital deduction applies retroactively.⁶ The return is generally due nine months after death, so the window is narrow, but for a spouse already deep in the naturalization process, the timing can work.

Qualified Domestic Trusts

The Qualified Domestic Trust, or QDOT, is the primary tool for preserving the marital deduction when the surviving spouse is not a U.S. citizen. Without one, the estate tax is due at the first death rather than deferred until the survivor dies. The requirements are strict, and missing any of them disqualifies the trust.

Two structural rules govern the trust. At least one trustee must be a U.S. citizen or a domestic corporation, and the trust document must give that U.S. trustee the right to withhold estate tax from any distribution of principal.⁹ The IRS wants a domestic party it can reach for collection. The executor also has to affirmatively elect QDOT treatment on the estate tax return — it isn’t automatic.

Inside the trust, the tax treatment splits along income versus principal. Distributions of trust income to the surviving spouse are not taxable events.¹⁰ Distributions of principal trigger the deferred estate tax as though the first spouse had just died, and must be reported on Form 706-QDT. The surviving spouse can live on the income; dipping into principal creates a bill.

There is a hardship exception. If the surviving spouse faces an immediate and substantial financial need related to health, living expenses, education, or support — or the same need for someone they’re legally obligated to support, like a dependent child — a principal distribution can be made without triggering the tax. The exception only applies if the spouse cannot reasonably obtain the funds elsewhere, such as by selling publicly traded stock or cashing in a CD. The IRS specifically excludes closely held business interests, real estate, and personal property from the list of “reasonably available” alternatives, recognizing that liquidating those under pressure is not realistic.¹¹ Hardship distributions still get reported on Form 706-QDT. Trusts holding more than $2 million may also be required to post a bank letter of credit or a bond as security.

Foreign Assets, Reporting, and Cross-Border Wills

Green card holders owe U.S. tax on worldwide income and carry two separate foreign account reporting obligations that ripple into estate planning. The first is the FBAR. If the combined value of your foreign financial accounts exceeds $10,000 at any point in the year, you must file FinCEN Form 114 electronically.¹² The $10,000 is an aggregate figure across all accounts, and it covers bank accounts, investment accounts, pensions, and any account where you have signature authority even if the money isn’t yours.

The second is IRS Form 8938 under FATCA. For an unmarried filer living in the U.S., the thresholds are foreign assets over $50,000 on the last day of the year or $75,000 at any point during the year. For married couples filing jointly, it’s $100,000 and $150,000.¹³ The two reports overlap but aren’t identical, and many people need both.

The penalties are heavy. Failing to file Form 8938 carries a $10,000 penalty, with additional penalties up to $50,000 for continued failure after IRS notice. Tax underpayments tied to undisclosed foreign assets face a 40% accuracy penalty on top of the tax owed, and criminal prosecution is possible.¹⁴ For estate planning purposes, undisclosed foreign accounts are hidden estate liabilities — back taxes, penalties, and interest that can eat a large share of what you meant to leave your family.

Owning real property in another country adds a second tax authority claiming a piece at death. The U.S. maintains estate and gift tax treaties with a limited group of countries: Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland, and the United Kingdom.¹⁵ A treaty usually provides credits or exemptions that block double taxation. If your home country isn’t on the list, you’re navigating without one.

Many green card holders benefit from separate wills for each country where they hold significant assets — a U.S. will for domestic property and a local will governing family land, foreign business interests, or local accounts. Each will should explicitly limit itself to assets within that jurisdiction so it doesn’t inadvertently revoke the other. A single global will often gets stuck when one country’s court demands authentication of a document drafted under another country’s law. Valuations matter too. Foreign real estate often lacks the public records that make U.S. property easy to appraise, statements need conversion to U.S. dollars at the correct rate, and interests in foreign companies typically require a formal valuation from a local professional. Gathering this documentation before it’s needed is one of the highest-return steps a permanent resident can take.

Beneficiary Designations Override Your Will

Some of the largest assets in an estate never pass through a will. Life insurance policies, 401(k)s, IRAs, and bank accounts with payable-on-death designations go directly to the named beneficiary regardless of what your will says. People spend time and money on a will or trust and then leave outdated beneficiary forms in place that override the whole plan.

For green card holders, this creates a specific risk. A relative in your home country named as an IRA beneficiary years ago still controls that account unless you update the form, even after a U.S. marriage or children. Designations also collide with the QDOT rules. Leaving a large retirement account outright to a non-citizen spouse bypasses the QDOT structure entirely, losing the marital deduction and triggering estate tax immediately.

Review every beneficiary designation at least once a year and after any major life event — marriage, divorce, a new child, or a change in immigration status. Confirm they line up with the rest of the plan, especially any QDOT. The fix takes five minutes and a form; the cost of getting it wrong runs to six figures.

Powers of Attorney and Healthcare Directives Across Borders

Estate planning isn’t only about death. A healthcare directive spells out your medical treatment preferences, a healthcare proxy names someone to make medical decisions if you can’t, and a durable financial power of attorney authorizes someone to handle bills, investments, and banking on your behalf.

The cross-border wrinkle is significant. These documents are governed by the law of the place where they’re used, not where they were signed. U.S. states generally recognize each other’s healthcare paperwork, but that recognition rarely extends to documents executed in a foreign country. A hospital that refuses to honor a foreign healthcare proxy can force your family into an emergency guardianship proceeding at the worst possible moment.

The practical fix is separate documents for each jurisdiction where you spend meaningful time. If you split time between the U.S. and another country, prepare a healthcare directive that complies with each country’s laws. A financial power of attorney that may be used abroad should be notarized and apostilled under the Hague Convention so foreign institutions will accept it. Green card holders who end up detained, deported, or otherwise unable to return face the sharpest version of this problem — without a valid power of attorney already in place, there may be no one authorized to sell the home, close the accounts, or open the safe deposit box.

Naming Executors, Trustees, and Guardians

You can name a family member living abroad as your executor or trustee, but doing so creates friction. Many probate courts require a foreign fiduciary to post a surety bond, essentially insurance guaranteeing responsible management, with premiums typically running 0.5% to 1% of estate value annually. That adds up on a large estate.

A foreign executor also has to sign documents in person, attend court hearings, open U.S. bank accounts, and work within a legal system they may not know. Some states require non-resident executors to appoint a local agent for service of process. For most green card holders, the better structure is a U.S.-based primary executor or co-executor who handles the immediate mechanics, with the foreign family member in a secondary role or as an advisor to the trust.

Guardianship of minor children is harder still. A U.S. court has to approve a foreign guardian, weighing the proposed guardian’s fitness, the child’s ties to the United States, and any applicable international custody laws. If no domestic guardian is named, the children can end up in temporary state custody while the court investigates. Naming a local guardian for the short term and a foreign relative for permanent care gives the court a clear path and keeps your children out of the foster system during a process that can take months.

If You’re Thinking About Giving Up the Green Card

Long-term green card holders who surrender or lose their status can face a steep exit tax. Under federal law, a “long-term resident” is anyone who held a green card during at least 8 of the 15 tax years ending with the year they give up the status.¹⁶ Any part of a tax year counts.

A long-term resident who qualifies as a “covered expatriate” is treated as having sold every asset the day before giving up the green card. Gain above an inflation-adjusted exclusion (approximately $910,000 for 2026) is taxed as income even though nothing was actually sold.¹⁶ Deferred compensation and pensions face a 30% withholding tax when eventually paid, and gifts or bequests from a covered expatriate to U.S. persons can trigger a special tax on the recipient.

You’re a covered expatriate if any one of three tests hits: net worth over $2 million on the day before expatriation, average annual net income tax liability over roughly $211,000 for the five prior years, or an inability to certify under oath that you’ve been fully tax-compliant for the past five years. The compliance test is the most dangerous because failing it makes you a covered expatriate regardless of wealth or income. Long-term residents must file Form 8854 with their final U.S. tax return. If you’re close to eight years and considering giving up the card, talk to a tax professional before you do anything — the cost of leaving can be enormous.

State Estate Taxes Sit on Top of the Federal Rules

Federal estate tax isn’t the whole picture. Roughly a dozen states and the District of Columbia impose their own estate taxes with exemption thresholds well below the federal $15 million, ranging from as low as $1 million to several million depending on the state. Some states apply their tax to the whole estate once the threshold is exceeded rather than just the excess.

The states with their own estate tax are especially relevant when the estate falls between the state threshold and the federal exemption. A $5 million estate might owe nothing federally and still owe a substantial state bill. Green card holders with flexibility about where they live should factor this in. Moving from a low-threshold state to one with no estate tax at all can save heirs hundreds of thousands of dollars, provided the move is genuine — states challenge domicile claims the same way the IRS does.

1
Internal Revenue Service. Estate Tax for Nonresidents Not Citizens of the United States
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Internal Revenue Service. 4.25.4 International Estate and Gift Tax Examinations
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Internal Revenue Service. What’s New – Estate and Gift Tax
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Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
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Internal Revenue Service. Gifts and Inheritances
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Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse
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Office of the Law Revision Counsel. 26 USC 2523 – Gift to Spouse
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Internal Revenue Service. Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States
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Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust
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Internal Revenue Service. Instructions for Form 706-QDT
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eCFR. 26 CFR 20.2056A-5 – Imposition of Section 2056A Estate Tax
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Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
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Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
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Internal Revenue Service. FATCA Information for Individuals
15
Internal Revenue Service. Estate and Gift Tax Treaties (International)
16
Office of the Law Revision Counsel. 26 USC 877A – Tax Responsibilities of Expatriation