This is part two of our series where we discuss well-meaning but potentially costly mistakes in your estate plan. In this video, I’ll cover the implications of adding non-citizens—such as a Thai spouse or other loved ones—to the title of your property in an attempt to bypass proper estate planning.
My name is Steven Liu. I’m a California-licensed attorney based in San Francisco, focused on international estate planning. My family and I also spend time in Thailand, and we understand the issues U.S. expats face with U.S. assets and Thai spouses and families.
In the last video, we covered the pitfalls of adding your children onto the title of your U.S. properties as a way to pass on property at death. In this video, we’re diving into the downsides of gifting U.S. assets to a spouse or partner who is not a U.S. citizen.
But first, a quick reminder: although I’m a licensed attorney, this video is for general informational purposes only and is not legal advice. Please consult with a qualified licensed attorney for advice tailored to your situation.
So let’s get started with the general rules around gifting assets to your spouse or partner while you’re alive. Before you make that gift, it’s a good idea to understand the U.S. gift tax implications.
If you’re married to a U.S. citizen spouse, the government offers an unlimited marital deduction. You can give them any amount, anytime, tax-free.
However, the rules are much different for a non-U.S. citizen spouse, especially an unmarried partner. For a Thai or other non-U.S. citizen spouse, you can gift up to $190,000 tax-free each year. Any amount over that starts eating into your lifetime federal gift and estate tax exemption, which is currently around $13.99 million.
If the gift is to a non-spouse partner—or anyone who isn’t your spouse—you only get the standard annual gift exclusion of $19,000 per person. Anything over that immediately starts using up your lifetime exemption.
Crucially, the U.S. tax system imposes the gift tax on the grantor—the U.S. spouse or partner—not the Thai recipient. If you make a gift over the annual exclusion amount, you must file a gift tax return using IRS Form 709.
Also, for grantors whose assets exceed the lifetime federal gift and estate tax exemption, more advanced estate planning should be considered to minimize the potential 40% federal estate tax liability.
Federal gift tax is only one consideration. You also need to think about capital gains taxes and local property taxes.
For capital gains, when you gift property during your lifetime, the recipient receives your original purchase price as their tax basis. When they eventually sell the property, they may owe capital gains tax on all the appreciation since your original purchase date.
By gifting property during life, you lose out on the valuable stepped-up basis at death, which can save your beneficiaries a significant amount in taxes.
Here’s a quick example: if you purchased a home 15 years ago for $100,000 and it’s now worth $300,000, and you gift the property to your partner today by adding them to the title, they inherit your original $100,000 basis. The increase in value could then be subject to capital gains taxes when sold.
However, if the property passes at your death, there is generally no capital gains recognized up to the date of death, and your beneficiary receives a stepped-up basis equal to the home’s market value at the time of your death. This could save a significant amount in taxes, especially considering capital gains taxes can exceed 25%.
In states where property taxes are a major source of revenue—like California—gifting property can also trigger a large and immediate property tax increase.
If you gift California real estate to your spouse, whether they are a U.S. citizen or not, the good news is that California’s interspousal transfer exclusion generally prevents reassessment. Your spouse can keep your lower property tax basis.
However, if you gift property to a non-spouse partner—regardless of citizenship status—that transfer will almost certainly trigger a full reassessment to current market value, likely resulting in a substantial increase in property taxes.
Outside of California, the rules vary by state, but many states also impose transfer taxes or documentary stamp taxes when recording a deed for a gift.
Finally, let’s consider some of the immediate and long-term legal complications of adding a partner—or anyone else—to the title of your property.
Once you add a co-owner, you generally cannot simply remove their name from the deed. Even if the relationship ends, their share of the property remains legally theirs.
In cases of divorce, especially in community property states like California, Texas, and Washington, the spouse’s interest in the property may be treated as a marital asset subject to division during divorce proceedings.
For non-spouse partners, ownership is often structured as either joint tenancy or tenancy in common, giving each person an independent ownership interest.
Adding a co-owner also exposes your property to that person’s financial liabilities. If your partner or spouse has significant debt or is successfully sued, their interest in the property can potentially be seized or sold to satisfy a judgment. This can even happen if the judgment originates from Thailand or another foreign country.
In addition, once your partner becomes a co-owner, you lose some control over what happens to their share of the property after their death. They may legally leave their share to whomever they choose in their own will or estate plan, even if it conflicts with your wishes.
One major benefit of passing property through your own estate plan—such as through a trust or will—is that you retain full ownership and control during your lifetime, and you can change beneficiaries if circumstances change.
When assets pass at death to a non-U.S. citizen spouse, the unlimited marital deduction no longer applies. However, if your estate is below your remaining lifetime exemption amount, those assets may still pass free of federal estate tax.
For estates that exceed the exemption limit, a common solution is a specialized trust called a Qualified Domestic Trust, or QDOT. This allows the estate tax to be deferred until the surviving spouse either withdraws principal from the trust or passes away.
For transfers to anyone who is not your spouse, the standard federal estate tax rules apply. If your total estate exceeds the exemption amount, the estate itself pays the tax.
The good news is that property inherited at death generally receives a stepped-up basis to fair market value, potentially eliminating much of the built-in capital gains tax liability.
As you can see, gifting property to a non-U.S. citizen can trigger significant federal tax, estate planning, and legal issues. This is not something you want to handle as a DIY project.
The specific implications depend on your assets, the recipient, your domicile, and the state where the property is located.
To avoid making an irreversible and potentially expensive mistake, it’s prudent to consult with an attorney who specializes in international estate planning to help navigate these complexities and ensure your loved ones are protected.
I hope you found this helpful. Please feel free to reach out for a free consultation if you have any questions. My contact details are in the description below.
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