Qualified Domestic Trusts (QDOTs)
Sept. 27, 2022
A QDOT, or qualified domestic trust, is a special type of trust designed to hold assets for the benefit of non-citizen spouses. Under federal law, non-citizen spouses are not entitled to the same inheritance tax exemptions as citizens, which can result in significant tax liability upon the death of the citizen spouse.
A QDOT allows the non-citizen surviving spouse to take advantage of the marital deduction on estate taxes for assets placed in the trust before the death of the U.S. citizen spouse. For surviving spouses who have not obtained U.S. citizenship, a QDOT is the best way to preserve marital assets.
The QDOT must meet certain criteria to be effective, for instance, the trust must have a U.S. citizen trustee. The trust must also be irrevocable, meaning that the creator of the trust cannot revoke or modify the trust terms once created.
When properly structured, a QDOT can help to minimize estate taxes on assets that would otherwise be subject to taxation. For example, if a U.S. citizen dies and leaves behind an estate worth $5 million, the estate would be subject to significant estate taxes. However, if the deceased had established a QDOT prior to death, the estate would only be subject to estate taxes on the assets that were not held in trust.
It’s worth noting that QDOT assets will be subject to estate taxes upon the death of the surviving non-citizen spouse. Nevertheless, with careful planning, a couple can significantly increase the portion of their overall estate that passes to their heirs.
Our Office Can Help
QDOTs can be an effective tool for couples with significant assets and a non-citizen spouse. However, it is important to consult with an experienced trusts and estates attorney to ensure that the trust meets all the necessary requirements and to properly plan for distribution of assets upon the death of the non-citizen spouse.
If you have questions about whether a QDOT is right for you, Click here to Schedule a FREE Virtual Estate Planning Session.
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