As both your assets and your family grow, your estate plan should grow with them. You will soon find that a simple Last Will and Testament is not sufficient to meet all of your estate planning needs and goals. One of the most common additions to an estate plan is a trust agreement. The type of trust you establish will depend on your goals and objectives. If you are married to a foreign national, or non-citizen, your estate planning attorney may suggest that you include a Qualified Domestic Trust, or QDOT. Only your Illinois estate planning attorney can help you decide if a QDOT is right for your estate plan; however, to give you an idea why you might need a QDOT trust, the Lincolnshire asset protection attorneys at Hedeker Law, Ltd. explain how a QDOT trust works.
Multi-National Marriages in the 21st Century
As the world shrinks and national borders blur, it is becoming more and more common for people to enter into relationships with people from other countries. In fact, in 2013 the United States Census Bureau reported that one in five marriages in the U.S. includes a spouse born outside the U.S. Of those marriages, about 60 percent of the foreign-born spouses have become naturalized citizens, leaving the remaining 40 percent as non-citizens. Couples in “mixed-nativity” marriages may face a number of practical issues throughout their marriage as a result of the immigration status of one spouse. If the citizen spouse has a moderate to large estate that he/she wishes to leave to the non-citizen spouse upon death, special care must be taken in how that is done too avoid the loss of a significant percentage of the estate’s value.
Federal Gift and Estate Taxes
If you are a U.S. citizen, your estate will be subject to federal gift and estate taxes when you die at the rate of 40 percent. The gift and estate tax is essentially a tax on the transfer of wealth and applies to the value of all qualified gifts made during your lifetime combined with the value of your estate assets at the time of your death. While there are a number of estate planning strategies that may help you diminish the impact of federal gift and estate taxes, one thing taxpayers have long been able to count on using is the unlimited marital deduction. As the name implies, the unlimited marital deduction allows a taxpayer to gift an unlimited number of assets to a spouse without incurring the federal gift and estate tax; however, the marital deduction does not apply if your spouse is not a U.S. citizen. Therefore, if you directly gift assets to your non-citizen spouse in your estate plan a significant chunk of those assets could be lost to Uncle Sam.
How Can a Qualified Domestic Trust Help?
If you are married to a non-citizen and wish to leave him/her significant assets in your estate plan, a QDOT trust may be the best solution. A QDOT is a specialized trust into which you will transfer your estate assets. Your spouse will be entitled to the interest from the trust assets but will not own the assets. In fact, your spouse will not be entitled to access the principal held in the trust unless he/she can demonstrate a hardship need. The only time your spouse can access the principal is if your spouse can demonstrate an “immediate and substantial” need for money relating to “heath, maintenance, education or support” of either your spouse or someone your spouse is legally obligated to support, such as a child. Upon the death of your surviving spouse, the assets held in the trust will be distributed to the beneficiaries named in the trust, usually children and/or grandchildren. If any federal and/or state estate taxes are due at that time they will need to be paid at the time of distribution.
Contact Lincolnshire Asset Protection Attorneys
For more information, please download out FREE estate planning worksheet. If you have additional questions or concerns regarding asset protection or the use of a QDOT trust, contact the experienced Lincolnshire asset protection attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.