Qualified Domestic Trust (QDOT)

What is a QDOT?

A Qualified Domestic Trust (QDOT) is a special type of trust that lets a surviving spouse who is not a U.S. citizen claim the federal estate tax marital deduction for assets placed in the trust. Without a QDOT, a non‑citizen surviving spouse generally cannot receive the unlimited marital deduction that a U.S.‑citizen spouse can.

How a QDOT works

• A decedent funds the QDOT with marital assets before death (or the surviving spouse may establish and fund a QDOT before the decedent’s federal estate tax return is filed if the decedent failed to do so).
• Assets inside the QDOT qualify for the marital deduction at the decedent’s estate tax filing, effectively deferring U.S. estate tax that would otherwise be due at the first spouse’s death.
• Estate tax is not eliminated—tax is generally deferred until the later of distributions to the surviving non‑citizen spouse or the surviving spouse’s death. At the surviving spouse’s death the QDOT assets may be subject to federal estate tax under Internal Revenue Code Section 2056A.

Key requirements

To qualify under IRS rules a QDOT must meet certain conditions, including:
* Trust terms must satisfy the requirements of Section 2056A of the Internal Revenue Code.
* At least one trustee must be a U.S. citizen or a domestic corporation (a U.S. person/trustee is needed to permit collection of any tax owed).
* The trust must be valid under applicable state law and properly funded with the assets intended to claim the marital deduction.
* Any distributions and tax‑collection provisions required by the IRS must be observed so the trust retains qualified status.

Limitations and tax consequences

• A QDOT defers estate tax; it does not eliminate it. Estate tax may become payable when principal is distributed to the surviving non‑citizen spouse or on that spouse’s death.
• Assets not transferred into the QDOT do not qualify for the marital deduction and may be taxed at the first spouse’s estate.
• Future taxes can reduce the value available to beneficiaries.
• Additional administrative and compliance burdens arise from special QDOT reporting and trustee obligations.

Who should consider a QDOT?

• Married couples in which the surviving spouse is not a U.S. citizen and the couple wants to preserve marital assets and defer U.S. estate tax.
• Situations where the non‑citizen spouse is unlikely to obtain U.S. citizenship before the decedent’s estate tax return is due.
  Consult an estate planning attorney to determine whether a QDOT is appropriate and how it should be structured.

Practical steps

1. Review your estate plan with an attorney experienced in international or cross‑border estate matters.
2. Decide which assets (if any) should be transferred into a QDOT.
3. Draft trust language that complies with Section 2056A and state law.
4. Appoint an appropriate trustee (at least one U.S. trustee or domestic corporate trustee).
5. Fund the trust and file required federal estate tax returns on time.

Key takeaways

• A QDOT allows a non‑U.S. citizen surviving spouse to receive the marital deduction and thus defer U.S. estate tax on qualifying marital assets.
• It must meet IRS and state law requirements, including having a U.S. trustee.
• A QDOT defers, but does not eliminate, estate tax; careful drafting and administration are essential.

If you have cross‑border estate planning needs or a spouse who is not a U.S. citizen, speak with an estate planning attorney to evaluate whether a QDOT fits your circumstances.