Qualified domestic trust

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Qualified Domestic Trust

A trust into which the trustor deposits funds and other assets to provide for a surviving, non-U.S. citizen spouse while also maintaining control of what happens to those assets after the surviving spouse dies. In a Q-DOT, the trustor names his/her surviving spouse as beneficiary and provides that income and/or principal from the trust shall pass to that spouse upon the trustor's death. This enables the surviving spouse to avoid estate taxes to which the non-American spouse would otherwise be subject. See also: Q-TIP.
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Qualified domestic trust (QDOT).

If your spouse isn't a US citizen and your estate is large enough to risk being vulnerable to estate taxes, you can use a qualified domestic trust (QDOT) to allow your spouse to enjoy the benefit of the marital deduction until his or her own death.

In short, the marital deduction means that one spouse can leave the other all his or her assets free of estate tax. The inherited assets become part of the estate of the surviving spouse, and unless the combined value is less than the exempt amount, estate tax could be due at the death of that spouse.

The difference, with a QDOT, is that at the death of the surviving, noncitizen spouse, the assets in the trust don't become part of his or her estate, but are taxed as if they were still part of the estate of the first spouse to die. Income distributions from the trust are subject to income tax alone, but distributions of principal may be subject to estate tax.

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References in periodicals archive ?
Question--What are the requirements of a qualified domestic trust (QDOT)?
[section] 2056A to create a qualified domestic trust for an estate of a decedent who died prior to January 1, 2005.
A marital deduction is generally not allowable where the surviving spouse is not a United States citizen unless the transfer is to a qualified domestic trust (see Q 863).
* reform a qualified domestic trust (QDOT) for a noncitizen spouse under IRC section 2056(d) and IRC section 2056A(a); or
domiciliary from the decedent's death to the time of naturalization or (b) the property is transferred to a "qualified domestic trust" meeting the requirements of section 2056A.
A major exception to this disallowance rule is provided for property passing from the decedent to a qualified domestic trust (QDT) on behalf of the surviving spouse.
In any event, you might want to explore the new "qualified domestic trust," which may defer the payment of the tax.
(3) However, if the decedent's spouse is not a United States citizen, interests in property held by the decedent and the decedent's spouse are not treated as a qualified joint interest (apparently unless the transfer to the surviving spouse is in a qualified domestic trust, see Q 863).
In order to prevent a noncitizen surviving spouse from leaving and removing property from the United States, the unlimited marital deduction is not available, unless: (1) the noncitizen surviving spouse becomes a citizen prior to the time for filing the deceased spouse's federal estate tax return; or (2) the property is passed to a qualified domestic trust (QDOT).
A final option is to create a qualified domestic trust, either as part of a revocable credit shelter trust or as a stand-alone pour-over trust.
Deferring Tax with a Qualified Domestic Trust. In some cases, the surviving spouse may further defer payment of estate tax by transferring the assets to a tax-deferred trust called a Qualified Domestic Trust (QDOT).

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