Structuring QDOTs for Non-Citizen and Nonresident Spouses: Deferring Tax Through Qualified Domestic Trusts

Overcoming Unfavorable Exemption Rules for Non-U.S. Spouses, Utilizing Portability, and Maximizing Asset Transfers

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Tuesday, May 9, 2017

Recorded event now available

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Program Materials

This CLE/CPE webinar will provide estate planning counsel advisers with a thorough and practical guide to the rules and structuring considerations to drafting qualified domestic trusts (QDOTs) for U.S. taxpayers with nonresident alien (“NRA”) spouses. The panel will offer specific guidance on when to best employ QDOTs, discuss the specific risks and benefits of the trusts, detail trustee and withholding requirements, and provide specific drafting examples.

Description

The permanent increase in the estate tax exclusion amounts for U.S. taxpayers has changed the focus for most estate planners from estate tax avoidance to income and gift tax minimization. However, for U.S. taxpayers (or NRA taxpayers with U.S. property) who have non-citizen spouses, estate tax planning remains a critical challenge. Estate planners and advisers to families with non-U.S. spouses must meet these challenges to avoid ruinous tax consequences. For these taxpayers, a Qualified Domestic Trust (QDOT) is often the only means of passing assets tax-free to non-citizen spouses.

In contrast to the high exclusion amount for citizens ($5,450,000 for individuals and $10,900,000 for a married couple), non-resident/non-citizens with U.S.-based property are only entitled to an estate tax credit equivalent to a $60,000 estate exclusion, unless a tax treaty grants a higher amount. Additionally, non-U.S. surviving spouses are generally not entitled to the unused portion of the deceased U.S. spouses unused exemption amount, eliminating the benefits of “portability.”

There are various ways to structure a QDOT to benefit a non-citizen spouse. For a trust to qualify as a QDOT, the trust document must contain specific provisions addressing trustee requirements and withholding remittances on distributions to the non-citizen spouse, among other issues. Estate planning counsel must understand components that must be part of a trust operating agreement for the trust to qualify as a QDOT.

Listen as our experienced panel provides a thorough and practical guide to QDOT strategies and structures, including sample language for critical provisions.

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Outline

  1. Estate tax exemptions for nonresidents
  2. Terms of QDOTs
  3. Withholding and trustee provisions
  4. Benefits and risks of QDOTs
  5. Key structuring examples

Benefits

The panel will review these and other key issues:

  • What types of trusts qualify as QDOTs?
  • Structuring withholding provisions that will meet IRS requirements for QDOT designation
  • What specific trustee provisions and designations must a QDOT document contain to withstand IRS scrutiny?
  • Tax consequences and inclusions on death of U.S. spouse under various QDOT structures

Faculty

Nancy O. Kuhn
Nancy O. Kuhn

Director
Jackson & Campbell

Ms. Kuhn specializes in Federal and state tax matters and is the Chair of  the firm's Tax Group. She has...  |  Read More

John C. Martin
John C. Martin

Founding Partner
The Law Offices Of John C. Martin

Mr. Martin provides counsel in estate planning, trust, probate, business succession, charitable gifting, and...  |  Read More

Jonathan A. Mintz
Jonathan A. Mintz

Partner
Evergreen Legacy Planning

Mr. Mintz has more than 25 years’ experience in sophisticated case design and implementation for affluent...  |  Read More

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