Special Planning Considerations for Non-Citizen Spouses

Married couples in which one of the spouses is not a U.S. citizen must include special provisions in their estate plans or face potentially onerous tax consequences.  That special planning is a qualified domestic trust, commonly abbreviated as a QDOT trust.

QDOT trusts are used when an American citizen wants to transfer assets to his or her non-citizen spouse.  Assets passed in a QDOT have the benefit of the unlimited marital deduction so a citizen spouse can pass as much as he or she wants to a spouse.  Otherwise, gifting to a non-citizen spouse is subject to limits.

Why is a QDOT trust required?  For the same reason the IRS has most of its rules; the government wants to collect taxes on the transfer of assets.  In the case of a non-citizen spouse, the government is concerned that when the citizen spouse dies, the non-citizen spouse will leave the United States, taking the assets with him or her.  If this were to happen, the IRS would miss out taxing the money as it transfers to the next generation.

QDOT Trust Requirements

1.       At least one trustee must be a U.S. citizen or a domestic corporation.

2.       The trust must include a provision that dictates that the trustee must withhold estate tax on principal distributed.

3.       The trust must include a provision that dictates that keeps the trust in adherence with IRS regulations to ensure collection of the estate tax.

4.       When the citizen spouse dies, his or her executor or trustee must elect, using the federal estate tax return (Form 706), to have the trust treated as a QDOT Trust.

If you are a married couple and one of you is a citizen and one of you isn’t, consider a QDOT trust to qualify assets gifted or inherited by the non-citizen spouse, under the unlimited marital deduction.

For help with the preparation of a QDOT trust as well as other important aspects of a thourough estate plan, consult with an experienced and qualifed estate planning attorney.

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Timothy P. Murphy

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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