A Qualified Domestic trust is also known as the QDOT, or QDT, and enables a non-U.S. citizen spouse of a U.S. citizen to qualify for an unlimited marital deduction. This prevents the survivor from keeping the estate from being subject to federal taxes.
Avoiding Financial Losses and Other Complications
Falling under the gamut of international estate planning and tax laws, it is not uncommon for uninformed families to fall into the complications of tax issues, guardianship problems, financial losses and other difficulties when a U.S. citizen with a non-U.S. citizen spouse passes away. Fortunately, with the help of our expert Palm Springs trust and estate law firm, it is possible to navigate through such complicated legal matters and avoid unwanted complications.
What is Marital Deduction?
Marital deduction essentially enables the transfer of unlimited amounts of assets from one spouse to another in the case of a death. However, this is possible only if the spouses are citizens of the United States. Here, the surviving spouse is not liable to pay any tax on the estate of that belonged to the deceased spouse; as long as the survivor is a citizen of the United States.
That said, it is important to note that the marital deduction does not exempt, but only postpones federal taxes on the estate. In fact, in many scenarios, it may even cost the survivor additional taxes in situations where no provision exists to reduce estate taxes.
Challenges Faced by Non-U.S. Citizen Spouses
In cases where the estate of a married couple is larger than $5.49 million estate tax exemption and either one or both spouses are not citizens of the United States, they will need a QDT to avoid taxes on the estate in the event of the death of one spouse. Not QDT is required for estates that are valued lower than $5.49 million since no federal tax will be due. Simply put, the first spouse to die uses his or her exemption of $5.49 million to transfer the estate to the surviving spouse and not use the marital deduction.
Who Should Create a QDOT?
For international couples that have assets valued over $5 million, creating a QDOT is a practical financial decision to make. However, if you are both American citizens of have assets valued under $5 million, you needn’t create a QDOT.
However, this unlimited marital deduction through a QDOT is applicable only of certain qualifications are met –
• A minimum of one trustee must be a domestic corporation or citizen of the United States.
• The trust must not permit a distribution of principal. Except, the U.S. citizen trustee has the right to withhold estate tax on the distribution.
• Enough the trust assets should be kept inside the U.S by the trustee to make sure payments towards federal estate taxes can be made.
• The executor of the estate of the citizen’s spouse must elect to make the marital deduction applicable to the trust.
For international couples concerned about their spouse after one’s own death, hiring a trust and estate planning firm can significantly streamline the finances for the survivor.
Contact Our Palm Springs Trust and Estate Law Firm
Contact our Palm Springs trust and estate law firm if you have assets, interests or loved ones living abroad or if you are living abroad in the United States. International couples who have significant property and assets abroad or within the United States and are concerned that it will be subject to forced heir-ship laws or mandatory inheritance laws can also benefit from professional help.