QDOT – A Viable Option in Estate Planning for Non-Citizens


Estate planning is essential to maximize the gifts you leave to your beneficiaries. However, if you are neither a US citizen nor a US resident, you need to be aware of the differences between the laws when it comes time to plan your estate. The differences may be unfavorable. In addition, marital deductions are not allowed for the estate of a citizen or a resident of the United States when the beneficiary is a non-resident spouse. Fortunately, the establishment of a qualified domestic trust, the QDOT, can be a viable option for increasing tax deductions.

When a QDOT is established, the estate is treated as that of the surviving spouse and is therefore taken into account in the lowest tax brackets. To be eligible, a trust must appoint at least one US citizen or national business as a trustee. In addition, the trust must be structured so that appropriate taxes are collected through the US Treasury. If the estate that will pass into the QDOT exceeds $ 2 million, one of the trustees must be a domestic corporation or an obligation must be subscribed for 65% of the fair market value of the estate in order to ensure the payment of the tax. If the estate is less than $ 2 million, the law states that no more than 35% of the estate may be held in the form of real estate located outside the United States.

The regulations are particularly flexible with respect to the possibility for a person other than the deceased to establish a QDOT, such as surviving spouse, the representative of a surviving spouse or the executor of the estate. . Nevertheless, it is best to treat this type of problem as soon as possible.

The establishment of a QDOT has some disadvantages that should also be assessed. Since the Designated Trustee will act as a withholding agent, he / she may be personally liable for the taxes if they are not withheld or improperly withheld. In addition, if the estate is entrusted to a corporate trustee, administrative expenses may result. For example, if the estate does not have liquid assets (those that can not be easily cashed out, such as real estate), it may be that it does not happen. there is not enough cash to pay the trustee's fees (fees must be paid to the trustees to manage the estate) or to pay the deposit, if any. In this case, it may be necessary to sell the assets to cover the costs, which can be difficult or unwanted. Because of the many advantages and disadvantages associated with QDOT, it is best to use an experienced professional to assess your estate and determine if a QDOT is the most economical way to set up your estate.

Whether you choose to use a QDOT or plan your estate in another way, it is essential that you examine your options with a lawyer not only in estate planning, but also familiar with the nuances of working with non-estate owners. residents. to maximize the value of the estate you leave to your loved ones.

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