Creating an Estate Plan When Your Spouse Is Not a U.S. Citizen, Consider a QDOT

Ordinarily, there is no estate tax due when the first spouse in a married couple dies. That is because married couples are entitled to what’s known as the unlimited marital deduction. Estate tax becomes due only when the second spouse dies. Unfortunately for married couples with a non-U.S. citizen spouse, the unlimited marital deduction does not apply. However, the federal estate tax does apply. To avoid paying tax when the first spouse dies, these couples should consider a Qualified Domestic Trust, also known as a QDOT.

8 Features of a Qualified Domestic Trust

Creating a QDOT as part of your estate plan requires the guidance of an experienced attorney. Generally, however, a QDOT has the following features:

1. The trust must be for the surviving spouse’s benefit.
2. The income from the trust must be distributed to the non-citizen surviving spouse.
3. The income from the trust can be distributed for the non-citizen surviving spouse’s benefit.
4. The income must be distributed to or for the surviving spouse at least annually.
5. The trustee may pay estate tax on the trust principal if that principal is distributed to the non-citizen surviving spouse.
6. The non-citizen surviving spouse cannot serve as the sole trustee of the trust.
7. The eligible trustees of a QDOT include professional trustees or other U.S. citizens.
8. If the trust principal exceeds a certain dollar amount, the trustee must post a bond with the IRS.

To learn more about QDOTs and whether they make sense for your family, we encourage you to contact us today at (714) 282-7488.