People put off estate planning for a lot of reasons. Often, they delay until they’re senior citizens or until things in their life are more “settled.” Unfortunately, we never know what the future is going to bring. That’s why it’s best to create an estate plan that works now and in the foreseeable future and then modify it as life and family changes occur.
One reason some people wait is that they have a foreign-born spouse who isn’t yet a U.S. citizen (or maybe isn’t sure they ever want to take that step). However, if a U.S. citizen spouse leaves behind a surviving non-citizen spouse without including them in their estate plan, that surviving spouse could end up losing a lot of their inheritance to taxes.
Surviving spouses who are U.S. citizens (either by birth or naturalization) receive a full marital deduction of estate taxes for any inheritances up to the threshold. As of 2022, that’s just over $12 million for federal estate taxes and about half that for New York estate taxes.
A QDOT can save a spouse from costly estate taxes
Surviving non-citizen spouses must pay estate taxes on the full amount they inherit – unless that money is left in a qualified domestic trust (QDOT). Then they pay only on the amount above the threshold.
One drawback to the QDOT is that it needs to be funded while the person who sets up the trust is still alive. Therefore, you would need to have money that you can set aside in a QDOT. If you don’t, it might be a better option to gift money or assets to your spouse over time.
These are just a few highlights of what a QDOT is and why it may be worth considering if your spouse isn’t a U.S. citizen. The best thing you can do is to get experienced legal guidance so that you can make the decisions that are best for your loved ones.
