Many Florida residents are in “mixed status” marriages where one spouse is a U.S. citizen and the other isn’t. Often, people think that they can’t include their non-citizen spouse as a beneficiary in their estate plan, even though they are here legally – usually as a green card holder.
Non-citizen spouses can indeed be included as beneficiaries. However, there can be significant tax consequences if an estate is large enough that it’s subject to federal estate tax.
When one spouse passes away, the surviving spouse gets a 100% marital deduction of estate tax – but only if they’re a U.S. citizen. That’s why many people wait for their spouse to complete the process of becoming a citizen to put an estate plan in place. Unfortunately, that delay can have serious consequences for their spouse and the rest of their family if they die unexpectedly. Further, some non-citizen spouses have no interest in becoming U.S. citizens.
What is a QDOT?
That’s where a qualified domestic trust (QDOT) comes in. It lets a non-citizen surviving spouse take advantage of the 100% marital deduction. Let’s look at how a QDOT works and why it’s recommended for those with non-citizen spouses.
- Assets are placed in a QDOT for which the spouse is the sole beneficiary
- The trust can provide income for the surviving spouse
- A trustee (and successor trustee), both U.S. citizens, are appointed
Note that if an entity like a bank or trust company is the trustee, it must be a qualified domestic corporation.
A QDOT isn’t necessary for everyone who has a non-citizen spouse. However, even if you don’t anticipate having an estate that will be subject to federal estate tax, it’s a good idea to know about this option – and more importantly, to know how to best plan for your spouse and the rest of your family after you’re gone. That’s where having sound estate planning guidance can make all the difference.