Qualified Domestic TrustQualified Domestic Trust (QDOT)

A Qualified Domestic Trust, or QDOT, is a special type of trust that you can use for estate tax planning. In this article, we will go over what a Qualified Domestic Trust is and how it works.

Marital Deduction

Under IRS Section 2056A the surviving spouse is eligible to deduct 100% of assets when it comes to reporting estate taxes. However, if the surviving spouse is not a US citizen this exemption is not available. The spouse would have to pay estate taxes on inherited assets.

QDOT Basics

To avoid estate tax, you can create a QDOT. With this type of trust the surviving spouse can take the marital deduction on estate taxes, even if they are not a citizen. Assets must be titled into the name of the trust for them to be exempt. This means changing the titling of accounts and property to reflect the trust being the owner. Additionally, one of the trustees must be a US citizen. This means two non-citizen spouses could not utilize a Qualified Domestic Trust.

Limitations

QDOTs do come with some limitations. A Qualified Domestic Trust does not completely avoid estate taxes. Once the surviving non-citizen spouse passes the subsequent beneficiaries will be subject to estate tax. Also, if assets in the trust exceed $2 million you must name a secondary trustee that is a US Bank.

Setting Up a QDOT

If a QDOT sounds right for you, schedule to meet with a qualified estate planner to get the process started.

Questions? Want to schedule an appointment? Contact us by clicking here.