A QDOT trust allows taxpayers who are not U.S. citizens to claim the marital deduction for estate tax purposes. The marital deduction allows transfers of unlimited amounts of assets between spouses at death, but only if they are United States citizens. The result is that the surviving spouse does not have to pay any tax on the estate of the first spouse to die, provided the surviving spouse is a citizen of the United States. The marital deduction only postpones the federal estate tax on the estate, and, in some cases, may cost a married couple additional taxes if there are no other provisions to reduce estate taxes.
Oakland Attorneys, Protecting Assets Through Non-U.S. Citizens Trusts
If a married couple has an estate that is greater than the $5 million estate tax exemption, and one or both of them are not citizens, they need a QDOT to avoid estate taxes on the death of the first spouse. For estates that are less than those amounts, no QDOT is needed because no federal estate tax will be due. However, for estates greater than those amounts, no marital deduction will be allowed if the surviving spouse is not a U.S. citizen and does not become a citizen by the time that the estate tax return is filed. After the death of the surviving spouse, the assets in the QDOT are subject to the estate tax as though they were included in the estate of the first spouse to die. These assets are not included in the surviving spouse’s estate. Income distributed from the QDOT to the surviving spouse is subject to income tax, but not estate tax. However, when principal is distributed from the QDOT to the surviving spouse it is subject to estate tax, unless the distribution is made for hardship reasons
To qualify as a QDOT, a trust must meet the following requirements:
- At least one trustee must be a U.S. bank.
- No distribution can be made from the trust, except for income, unless the trustee who is the U.S. citizen or corporation has the right to withhold estate taxes from the distribution.
- The trust must meet Treasury regulations regarding the collection of any tax.
- The executor must elect on the estate tax return to treat the trust as a QDOT.
Estate Planning Lawyers Creating Trusts to Protect Marital Deductions, Serving California
To discuss how QDOT trusts can be used to protect marital assets of non-U.S. citizens, please call 415-441-8669 or contact our lawyers online via e-mail to schedule a free initial consultation. Located in San Francisco, we accept cases in Oakland and communities throughout California.