If you have a spouse or other family members who are not U.S. citizens, there are estate planning strategies you can use to help ensure that they are able to keep as much of the inheritance you leave them as possible. A qualified domestic trust (QDOT) can be a valuable tool for preserving marital assets for those in these situations.
A QDOT allows a surviving spouse to take advantage of the marital deduction of 100% of any estate taxes owed on any assets that are included in that trust when the deceased spouse was still alive. Without this protection, a non-citizen surviving spouse — unlike a spouse who is a citizen — might owe taxes.
California doesn’t levy an estate tax. However, the federal government currently levies a tax on individual estates valued at over $11.7 million.
Requirements and limitations
There are some things of which you need to be aware if you’re considering establishing a QDOT. For example:
- At least one of the trustees needs to be a U.S. citizen or a domestic corporation that’s authorized to withhold estate taxes.
- The estate will have to pay taxes on the assets in the QDOT after the non-citizen spouse passes away. That can limit how much other surviving family members will receive.
If you have a spouse that’s not currently a U.S. citizen – even if they’re planning to become one – it’s essential to plan for their needs based on their current status. Unfortunately, we never know what the future will bring.
Too many people, even those with considerable assets, put off estate planning because they’re young and healthy. It’s best to develop your estate plan now and then make changes as needed when as your life changes and your family composition is altered.