What is a Qualifying Domestic Trust?

A Qualifying Domestic Trust (or QDOT as it is commonly called) is a special trust used by individuals for end-of-life planning. Basically, a QDOT trust allows assets held by the trust to be free from estate and gift taxes (up to the amount of the marital deduction which is currently unlimited per IRC Section 1056A) at the time of the trust creators death. The trust assets are then held for the benefit of the beneficiary. Estate planners employ QDOT trusts to protect the interests of a surviving spouse who is not a US citizen. While US citizen spouses receive the assets of their spouse free from estate or gift tax (up to the amount of the martial deduction - currently unlimited), a non-US-citizen spouse does not receive that benefit. As such, the couples often use a QDOT trust to preserve the benefit.

How Does a QDOT Trust Work?

As previously mentioned, a surviving spouse can only receive the assets of her deceased spouse free of estate and gift taxes if she is a US citizen. There is a limited exclusion from estate taxes of up to $152,000 (in 2018) for assets left to a non-citizen spouse. The QDOT trust can preserve the full marital deduction benefit when the decedent transfers all of his assets into the trust prior to passing away. This means that the decedent no longer has control over the assets at the time of death; rather, the assets are held in the trust, which is controlled by an appointed trustee. The spouse creating the trust cannot maintain control of the trust (such as the ability to pull money out) after creation. This means that the trust is irrevocable by the creator. The individual appointed to manage the trust (a Trustee) must be a US citizen or a domestic corporation authorized to retain assets for estate tax purposes. After the decedent passes, the trustee will continue to manage the trust assets for the benefit of the surviving spouse. This means that the trust can disperse funds to the spouse as directed in the trust or pursuant to her default discretion. The assets in the trust will ultimately be considered to be part of the estate of the beneficiary spouse when she passes away.

Related Topics

• Succession Planning
• Chartered Trust and Estate Planner
• Conservatorship
• Probate
• Cy Pres Doctrine
• Exordium Clause
• Non-Contestability (No Contest) Clause
• Bequest
• Per Stirpes
• Ademption
• Abeyance
• Elective Share
• Escheat
• Qualified Domestic Relations Order (QDRO) 
  
• Declaration of Trust
• Uniform Gifts for Minors Act
• Acceptance of Office by Trustee
• Beneficial Interest
• Asset Protection Trust
• Bare Trust
• Blind Trust
• Charitable Lead Trust
• Charitable Remainder Trust
• Charitable Remainder Annuity Trust
• Charitable Gift Annuity
• Credit Shelter Trust
• Discretionary Trust
• Generation Skipping Trust
• Grantor Trust Rules
• Living Trust
• Inter Vivos Trust
• Revocable Trust
• Irrevocable Trust
• Irrevocable Income-Only Trust
• Qualified Domestic Trust (QDOT)
• Qualified Terminal Interest Protection Trust (QTIP)
• ABLE Account
• Accumulated Income Payments (Canada)
• Charitable Split-Dollar Insurance Plan
• Coverdell Education Savings Account