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Making sure a non-citizen spouse is covered in your estate plan

Many people who are married to someone who has not yet obtained their U.S. citizenship delay their estate planning. They assume – wrongly – that a person who isn’t a citizen can’t inherit money. 

If your spouse hasn’t yet obtained their citizenship – or perhaps doesn’t intend to – you can still leave assets to them. However, you’ll need to be careful about how you do it so that they can avoid having some of that inheritance eaten up by taxes.

What is a QDOT?

Under the law, surviving spouses who are U.S. citizens get a 100% marital deduction of any inheritances up to the maximum amount currently allowed. In 2022, that amount is $12.06 million. If your spouse isn’t a citizen when you pass away, they could be required to pay federal estate taxes on their inheritance unless it’s left in a trust that protects it from being taxed.

A qualified domestic trust (QDOT) is a common choice for those who want to ensure that their non-citizen spouse isn’t stuck paying estate taxes unnecessarily. Assets in a QDOT qualify for the 100% marital deduction regardless of whether the spouse is a U.S. citizen or not.

Limitations and requirements

When you set up a QDOT, you need to make sure that the trustee (and any alternate trustees) are U.S. citizens. If you have multiple trustees, at least one must be a citizen. If you choose to have a corporate trustee, it must be based in the U.S.

The assets in a QDOT only offer protection from estate taxes for the surviving spouse. When they pass away, any assets from the trust they leave to beneficiaries are then subject to those taxes.

If your spouse isn’t a U.S. citizen, it’s wise to learn more about how QDOTs work as well as other types of estate planning instruments and options that can help your spouse retain more of the assets they’ll inherit if you predecease them. It’s wise to have experienced legal guidance to determine what will work best for your family.