One of the reasons that people spend time and money on a well-crafted estate plan is to prevent their heirs from having to pay taxes on the assets they inherit. This can help preserve as much of the family wealth as possible.
If you’re a U.S. citizen and your spouse is not, an important estate planning tool you should consider is a qualified domestic trust (QDOT). If you predecease your spouse before they have become a U.S. citizen (or they have no plans to become one), your spouse can claim the 100% marital deduction of estate taxes that a spouse who is a citizen would be able to get. If those assets are not in a QDOT (or another qualifying trust) prior to your death, your spouse will likely have to pay estate taxes on them.
Requirements of a QDOT
It’s crucial to understand the requirements of a QDOT that have to be met for it to work the way you intend it to. For example, the trustee (or at least one of them if there are multiple trustees) must be a U.S. citizen or a qualifying domestic corporation (like a financial institution or trust company). Further, once your widow or widower passes away, the estate will owe taxes on whatever assets are still in the QDOT.
Even if your non-citizen spouse has begun the process to get their U.S. citizenship, we all know that this can be a lengthy and complicated endeavor. You certainly hope and plan to live to see that dream fulfilled. However, estate planning is about ensuring that your family is financially secure regardless of what the future brings. Don’t leave something as important as your spouse’s financial well-being to chance.