Qualified Domestic Trust (QDOT)

What Is a Qualified Domestic Trust?

A qualified domestic trust (QDOT) is a special sort of trust that permits taxpayers who endure a deceased spouse to take the marital deduction on estate taxes, even on the off chance that the enduring spouse isn't a U.S. citizen.

Typically, a U.S. citizen enduring spouse can take the marital deduction, yet a non-citizen enduring spouse can't. QDOTs, as QTIP trusts, possibly permit the marital deduction in the event that assets are incorporated inside the trust.

How Qualified Domestic Trust (QDOT) Works

A qualified domestic trust (QDOT) permits a non-citizen enduring spouse of a deceased taxpayer to exploit the marital deduction on estate tax for any assets that are set into the trust before the death of the decedent. This sort of trust is useful for the non-citizen enduring spouse, who under standard tax laws, wouldn't be eligible for the marital deduction on estate tax.

According to the IRS, under Section 2056A, an enduring spouse is eligible for a 100% marital deduction of any estate taxes owed on assets. This means the enduring spouse pays no taxes on assets with no restriction. Nonetheless, on the off chance that the enduring spouse isn't a U.S. citizen, the marital deduction isn't allowable. Moreover, there is an estate tax exemption amount that applies independently or jointly that a non-resident non-citizen enduring spouse can't exploit that a U.S. citizen enduring spouse is permitted to utilize.

Shaping a QDOT and placing all assets into the trust permits a non-citizen enduring spouse to exploit the marital deduction of 100% of estate taxes.

For enduring spouses who have not gotten U.S. citizenship under any condition, a QDOT is the best method for saving marital assets. It is important to agree with all requirements and provisions of the trust for it to stay substantial.

Any assets excluded from the trust won't meet all requirements for the marital deduction and will be subject to estate taxes.

A QDOT just safeguards the assets of decedents who have passed on after November 10, 1998. Furthermore, something like one trustee of the QDOT must be a U.S. citizen or a domestic corporation authorized to hold estate tax. On the off chance that this multitude of conditions are met, framing a QDOT and putting marital assets into it can safeguard assets for the enduring non-citizen spouse.

Limitations of a Qualified Domestic Trust (QDOT)

Albeit a QDOT permits the qualifying non-citizen enduring spouse to take the marital deduction on assets inside the trust, it doesn't exempt the trust from paying the estate tax. It simply concedes it until the death of the enduring non-citizen spouse.

Around then, the estate will be liable for Section 2056A estate taxes on all assets in the QDOT, whether there are enduring trustees. This could reduce the value of the assets in the trust altogether for any enduring trustees.

Features

• Like any trust, it is significant to meet every one of the requirements and follow its provisions to stay substantial.
• A qualified domestic trust (QDOT) permits enduring spouses who are not U.S. citizens to take the marital deduction on estate taxes.
• On the off chance that you are married to somebody who is a citizen of another country, it might seem OK to utilize a QDOT.
• Parking all assets into a vehicle like a QDOT gives a safety net to an enduring spouse who isn't a U.S. citizen.