Qualified Domestic Trusts
Results-Driven Counsel Courtesy of Our International Estate Planning Lawyers
If your estate is valued at $5.49M or more and you are married to a non-U.S. citizen or you are a non-U.S. citizen married to a U.S. citizen, having an international estate planning attorney by your side is certain to provide substantial benefit to you and your family.
U.S. citizens and U.S. domiciliaries enjoy a lifetime estate tax exemption of $5.49M. For married couples, this doubles to $10.98M and the estate tax only applies on the passing of the surviving spouse by operation of the Unlimited Marital Deduction that serves to defer the estate tax until both members of the marital unit pass away. However, the Unlimited Marital Deduction is denied when the surviving spouse is not a U.S. citizen. This provision theoretically prevents the U.S. from losing the taxability of an estate with mobile assets. The result is that an estate in excess of $5.49M is subject to the U.S. estate tax where either member of the marital unit is not a U.S. citizen. To avoid this, a Qualified Domestic Trust (QDOT) can be created to preserve the Unlimited Marital Deduction. The QDOT will defer U.S. Estate Tax until the passing of the second member of the marital unit regardless the size of the estate. With the help of our experienced International Estate Planning Team, further planning can go beyond achieving tax deferral and actually achieve tax exemption on a significant portion of the estate.
Some people assume that once the U.S. citizen spouse passes away, the time for creating the QDOT has passed. Fortunately, that is not true. There is an option for a post-mortem Crisis QDOT.
Castro & Co. can navigate you through this difficult situation. Call any of our international estate planning lawyers today at (888) 595-5088.
What is a Qualified Domestic Trust?
A Qualified Domestic Trust is established by the tax code to afford non-citizen spouses an opportunity to enjoy the benefits of the unlimited marital deduction. All estate property may be put into a QDOT trust for the benefit of the surviving spouse. This allows tax to be deferred until distributions are made or the surviving spouse passes away and the “marital unit” ceases to exist.
The benefits of this opportunity are obvious. Imagine an estate subject to a $15M tax bill upon the death of the first spouse. Without a QDOT, $15M goes to the government upon filing of the estate tax return. The estate is immediately diminished by $15M. Utilizing a QDOT, the $15M remains a part of the estate and may be invested, loaned, capitalized, or otherwise put to beneficial use while the income and principal actually distributed to the surviving spouse are the only portions of the estate currently subject to tax.
Must a QDOT be Established Inter-Vivos?
There is no requirement that a QDOT be established as an inter-vivos (while living) trust. Establishing an inter-vivos QDOT is certainly one method for ensuring that the marital deduction can be capitalized upon by individuals with non-citizen spouses. Another benefit of consulting with an International Estate Planner concerning QDOTs while you are still living is that a QDOT may not be the best option for every client’s circumstances. Castro & Co.’s international estate planning team strives to provide completely individualized estate planning. This is achieved through discussing with our clients the pros and cons of all estate planning options available.
Of course, it is also possible to establish a post-mortem QDOT. Once an individual has passed away, the planning options become more limited. Fortunately, the QDOT is one option that is still available. However, there are time constraints on the establishment of a post-mortem QDOT. It is important to contact an experienced international estate planner before the filing of the estate tax return.
Does Every Non-Citizen Spouse Need a QDOT?
It is not necessary that every “marital unit” involving a non-citizen spouse establish a QDOT. In fact, a QDOT may not be the best option available to some individuals. There are rarely “one size fits all solutions” to problems as complex as international estates. However, when you contact our team at Castro & Co. we gladly discuss your situation and provide advice and planning to secure your legacy.
Call (888) 595-5088 to schedule a free consultation. We serve clients from around the globe from our international tax law firms in Washington DC, Miami, Dallas, and Orlando.