Qualified Domestic Trust (QDOT) Attorneys
Helping Non-Citizen Spouses Benefit from Estate Tax Deferrals
If your marriage involves mixed U.S. citizenship – that is, one of you is a citizen and the other isn’t – an international estate planning attorney from Castro & Co. can help you secure your loved one’s interests with confidence. Estates worth more than $11.2 million or less enjoy a lifetime estate tax exemption – for married couples, this can double to $22.4 million before estate taxes kick in. At that point, tax only applies when the second spouse dies. This is called the Unlimited Marital Deduction, and unfortunately it only applies when the surviving spouse is a U.S. citizen.
To avoid this scenario, Castro & Co. can help you establish a Qualified Domestic Trust (QDOT) to preserve the Unlimited Marital Deduction despite the citizenship status of the surviving spouse or size of the estate. With the assistance of our experienced overseas estate planning attorneys, we can help large portions of your estate qualify for tax deferral and more – even exemption is possible!
How Does a Qualified Domestic Trust Work?
As previously mentioned, a Qualified Domestic Trust (QDOT) functions to allow non-citizen spouses the opportunity to benefit from the unlimited marital deduction that benefits U.S. citizens when their spouses pass away. The assets and property of your estate are placed into the QDOT trust. When you pass away, taxes on your estate will be deferred until distributions are paid out or your spouse passes away.
As an example, if the tax bill on your estate amounts to $15 million upon your death, a QDOT prevents that $15 million from immediately going to the government when your estate tax return is filed. Instead, the value of your estate’s tax bill remains part of the estate and can be used to invest, loan, capitalize, etc. This leaves only the income or principal generated from these activities and distributed to your spouse as the only pieces of your estate that will incur a tax while your spouse still lives.
Qualified Domestic Trusts don’t need to be created as inter-vivos (or, “still-living”) trusts, but once a spouse passes away, the options become more limited. Post-mortem QDOTs can be created by your non-citizen spouse, but there are time constraints that you must be mindful of.
Establishing an inter-vivos trust is one way you can be sure that the marital deduction on your estate can be applied when your spouse isn’t a U.S. citizen. Another reason why your loved one – or you, if you’re not a U.S. citizen – shouldn’t wait and form a post-mortem QDOT is because a QDOT may not even be the best option available for your estate.
Always consult with an attorney during life so you can be sure of how your loved ones will be protected as best as possible when you pass away.
If you’re wondering how to defer your estate tax for your non-citizen spouse’s benefit, reach out to Castro & Co. online for legal assistance.
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