A Qualified Domestic Trust (QDOT) is a type of trust designed to protect non-citizen surviving spouses from Estate Taxes. Taxes apply on spouse transfers property to another, even in the event of death or co-owned property. The government provides an unlimited deduction for married citizen couples on the transfer of property, unless one spouse is a non-citizen. To overcome this potential hardship for non-citizen surviving spouses, the government created the QDOT.
Individuals must meet the following requirements for a QDOT to qualify:
1. At least one trustee must be either a U.S. citizen or a domestic corporation.
2. No distributions can be made from the trust unless the trustee has the right to withhold the tax due on the distribution.
3. The QDOT election must be made by the executor of the estate on the deceased spouse’s (decedent) estate tax return.
The spouse may still become responsible for taxes when a taxable event occurs. Special requirements apply to assets greater than $2 Million dollars.
What is a taxable event?
A taxable event includes moving money or property out of the QDOT before the surviving spouse passes, or the death of the surviving spouse. Taxes may be exempted if the money is a distribution of income or made on account of hardship.
What is a hardship in this case?
The government considers a hardship to be an immediate financial need. In this case, the need may be that of the surviving spouse or that spouse’s legal dependents. This is an important point, as needs include maintenance, health, education, or support.
As a citizen spouse with a non-citizen spouse, you want to protect the surviving spouse after death. As a surviving spouse, you want to protect your inherited assets and co-owned assets. Eileen Kerlin Walsh P.C. and Associates are here to guide you through the process. We are happy to work with your current financial planner or accountant, or refer you to one. Please call 708-448-5169 to schedule a consultation.