(For the Non U.S. Citizen Spouse)
The Problem: An estate marital deduction is only allowed to a spouse who is a U.S. citizen.
The Solution: A Qualified Domestic Trust (QDOT).
Normally, no estate marital deduction is permitted to a spouse who is not a U.S. citizen. However Internal Revenue Code section 2056(A) provides that if the non U.S. citizen spouse becomes a U.S. citizen before the time that the decedents estate return must be filed, or if the decedents property passes to a QDOT, a marital deduction becomes available.
To qualify as a QDOT, a trust must meet the following requirements which are designed to ensure that the transferred assets will ultimately be subject to U.S. estate taxation in the taxable estate of the first spouse to die:
- The trust must be a "traditional" marital deduction trust;
- At least one trustee of the QDOT must be a U.S. citizen.
- The trust must be an "ordinary" trust, and cannot be a "business trust", "investment trust" etc.
- The QDOT must provide that distributions other than hardship or income distributions are subject to withholding tax;
- The trust must meet regulations which ensure collection of any QDOT tax imposed on the trust; and
- The executor must elect QDOT treatment for the trust.
A QDOT can be used effectively in cases where one spouse is not a U.S. citizen. Please contact us for further information on how these provisions can be incorporated into your estate plan.