Being a non-U.S. citizen living in Arizona creates estate planning issues that most people do not expect. The federal government treats non-citizens very differently for estate and gift tax rules. Knowing these gaps is key to avoiding a large tax bill.
The Estate Tax Exemption Gap
U.S. citizens and permanent residents get a federal estate tax exemption of $13.99 million in 2025. Non-resident aliens get an exemption of only $60,000. That is a huge difference.
A non-citizen who dies owning $500,000 in U.S. assets could face a big tax bill. A citizen with the same assets would owe nothing.
Your status for estate tax purposes is based on "domicile," not just your visa or green card. The IRS looks at where your permanent home is, your intent to stay, and other factors. If you live in Arizona and call it home, you may be treated as a U.S. domiciliary. A domiciliary gets the full exemption. But the rules are complex.
The Marital Deduction and QDOT
U.S. citizens can leave unlimited assets to a surviving spouse free of estate tax. This is called the unlimited marital deduction. But this rule does not apply when the surviving spouse is not a U.S. citizen. Even if the citizen wants to leave everything to a non-citizen spouse, the transfer is taxable.
The fix is a Qualified Domestic Trust (QDOT). A QDOT lets the non-citizen surviving spouse benefit from the assets during their life. It defers the estate tax until the surviving spouse dies or takes money from the trust principal. A QDOT must meet specific IRS rules. It needs at least one U.S. trustee and certain safety measures for larger trusts.
Federal Gift and Estate Taxes for Non-Citizens
The yearly gift tax exclusion works in a different way too. A U.S. citizen can give up to $18,000 per year to anyone without triggering gift tax. But a U.S. citizen married to a non-citizen spouse gets a higher yearly exclusion of $185,000 in 2024 for gifts to that spouse. This replaces the unlimited marital deduction.
Non-citizens who are not based in the U.S. only owe federal gift and estate taxes on certain U.S.-based property. Real property in the U.S. is always taxable. U.S. stocks and certain personal property are also included. But assets like foreign bank accounts and foreign real estate are generally not subject to U.S. estate tax for these people.
Filing the Estate Tax Return
When a non-citizen dies owning U.S. assets above the exemption amount, the executor must file a federal estate tax return. This is true even if the person was not a permanent resident. The return sets the final tax bill and reports all U.S.-based assets.
If the person had assets in another country, there may also be foreign tax duties. Tax treaties between the U.S. and certain countries can reduce or end double taxation. But not all countries have treaties with the U.S.
Arizona Community Property Rules
Arizona is a community property state. If a married non-citizen couple lives in Arizona, assets gained during the marriage are generally shared property under state law. This affects how assets are split at death. It can also change the estate tax math.
A well-built estate plan should account for both federal tax rules and Arizona shared property law. Working with attorneys who know global estate planning is key for non-citizens living in Arizona.