Do you have a spouse who is a non-U.S. citizen? If so, you may need a special type of trust.
The federal government provides U.S. citizens an estate tax break that non-citizens don’t receive. The marital deduction says that you can leave all of your assets to your surviving spouse without estate taxes if he or she is a U.S. citizen. After the death of the surviving spouse, the remaining assets are subject to estate taxes.
The marital deduction, however, does not apply to non-U.S. Citizens. This means that a non-U.S. citizen spouse must pay estate taxes when he or she inherits. This is because non-U.S. citizens who receive assets can take the assets and leave the country, leaving the U.S. Government empty-handed after the death of the surviving spouse.
The Qualified Domestic Trust (QDOT) solves this potential problem and is a useful tool for prudent estate planning. With a QDOT, a surviving spouse who is a non-U.S. citizen can avoid estate taxes as long as the trust has at least one trustee who is a citizen of the United States or a domestic corporation. Essentially, the trust owns the assets at the first spouse’s death, and the trustee can decide how the assets are distributed. In order to accomplish this, estate plans must be carefully drafted.
If you would like more information on the QDOT, please contact us today.