The basic idea of a Qualified Domestic Trust or QDOT (normally built into most revocable living trusts) is to avoid the forced payment of estate taxes on the death of the first spouse with a large estate, where the intended recipient is a surviving spouse who is a non-U.S. citizen. Keep in mind that the following persons still enjoy an exemption from estate taxes on the first $5.54M in assets (2017 exclusion amount):
- U.S. Citizens
- U.S. Resident Non-Citizens
If you are married to a non-resident non-U.S. citizen, that person's exemption amount is only $60,000.
The following table illustrates the benefits and exclusions that can apply:
If, for example, a U.S. citizen spouse died leaving a share of assets less than $5.54M then there would be no need to utilize the QDOT provisions of their trust or create a QDOT trust for the surviving spouse. However, if the deceased U.S. citizen had more than $5.54M in their share of total assets, then the QDOT implementation of their trust would come into play, or if they did not have those provisions, a separate QDOT trust could be created in order to defer estate taxes.
The main implementation would be to name a U.S. Person or U.S. Corporate Trustee to act as Trustee or Successor Trustee.
If the deceased spouse and the surviving spouse were both non-citizen non-residents, then the exclusion amount from estate taxes is only $60,000.
Lifetime gifts from a U.S. citizen spouse to a non-citizen spouse are limited to $145,000 annually, therefore, be careful about adding non-citizens to title of real property or other significant assets during your lifetime that exceed what would amount to a gift of greater than $145,000. Any desire to add ownership attributes to a non-citizen spouse may need to be structured over time.