The Perks of Qualified Domestic Trusts (QDOTs) for Non-Citizen Spouses

Estate planning for couples with one non-U.S. citizen spouse presents unique challenges, particularly when it comes to estate taxes. While U.S. citizen spouses benefit from the unlimited marital deduction, which allows them to inherit assets without immediate tax consequences, this exemption does not automatically apply to non-citizen spouses. As a result, a surviving non-citizen spouse may face substantial estate taxes, potentially reducing their financial security.

A Qualified Domestic Trust (QDOT) offers a critical solution by deferring estate taxes and ensuring that inherited assets remain accessible to the surviving spouse. Understanding how QDOTs function and their strategic advantages can help families protect their wealth while complying with U.S. tax laws.

Why Non-Citizen Spouses Face Estate Tax Challenges

Under U.S. tax law, the unlimited marital deduction allows a surviving spouse to inherit assets without estate taxes. However, this benefit is only available to U.S. citizens. If a non-citizen spouse inherits assets exceeding the federal estate tax exemption—set at $13.99 million in 2025—any excess amount may be taxed at 40 percent.

The IRS imposes additional requirements for non-citizen spouses to prevent untaxed assets from leaving the country. A QDOT ensures that estate taxes are properly accounted for while still providing financial security to the surviving spouse.

How a Qualified Domestic Trust (QDOT) Works

A QDOT is a specialized trust designed to hold assets inherited by a non-citizen spouse, allowing them to defer estate taxes while still receiving financial support. The trust operates as follows:

• Establishing the QDOT: The U.S. citizen spouse sets up the trust within their estate plan, naming the non-citizen spouse as the primary beneficiary.
• Funding the Trust: Upon the citizen spouse’s passing, assets are transferred into the QDOT rather than going directly to the non-citizen spouse.
• Trustee Oversight: At least one trustee must be a U.S. citizen or a U.S. financial institution to ensure compliance with tax regulations.
• Income Distributions: The non-citizen spouse can receive trust income without incurring immediate estate taxes.
• Principal Withdrawals and Estate Taxes: If the surviving spouse needs to withdraw from the principal, estate taxes may be triggered unless a hardship exemption applies.

When the non-citizen spouse passes away, any remaining assets in the QDOT are subject to estate taxes before being distributed to heirs.

Requirements and Benefits of a QDOT

To qualify as a QDOT, the trust must meet several IRS requirements, including:

• A U.S. citizen or financial institution must serve as a trustee.
• The trust must be formally established before the estate tax return is filed.
• Estate taxes are deferred, but they are not eliminated—they apply upon withdrawals or when the surviving spouse dies.

1. Protects Against Immediate Estate Taxes

A QDOT allows a non-citizen spouse to inherit assets tax-free initially, avoiding an immediate 40 percent estate tax on amounts exceeding the exemption limit. Instead, estate taxes are postponed until funds are withdrawn or when the spouse passes away.

2. Provides Financial Stability

Since QDOTs allow non-citizen spouses to receive trust income tax-free, they ensure that essential financial support is available while preserving inherited assets for future needs.

3. Avoids Citizenship Pressure

Without a QDOT, a non-citizen spouse may need to obtain U.S. citizenship to qualify for the marital deduction. A QDOT eliminates this pressure, allowing the surviving spouse to inherit assets without changing their immigration status.

4. Helps Families Minimize Tax Liabilities

By incorporating a QDOT into an estate plan, families can reduce immediate tax burdens, protect inherited wealth, and ensure a smooth transfer of assets to future generations.

Alternative Strategies for Non-Citizen Spouses

In some cases, families may consider alternatives to a QDOT, such as lifetime gifting. In 2025, the annual tax-free gift limit for transfers to a non-citizen spouse is $190,000, allowing the U.S. citizen spouse to gradually transfer assets over time.

Another alternative is for the non-citizen spouse to become a U.S. citizen before the estate is settled. If this occurs, the unlimited marital deduction applies retroactively, eliminating the need for a QDOT.

Why a QDOT Is Essential for Estate Planning

For families with a non-citizen surviving spouse, a Qualified Domestic Trust is a crucial tool for protecting inherited wealth and ensuring financial security. Without proper planning, a non-citizen spouse may face significant tax liabilities or have limited access to inherited assets. Working with an experienced estate attorney can help families structure a QDOT that meets IRS requirements while safeguarding their financial future.

Key Considerations

• Estate Tax Risks for Non-Citizen Spouses: The unlimited marital deduction is not automatically available to non-citizen spouses.
• QDOTs Provide Tax Deferral: Assets are initially transferred tax-free, with estate taxes only applying upon principal withdrawals or the spouse’s passing.
• Trustee Oversight is Required: At least one trustee must be a U.S. citizen or a U.S. financial institution to ensure tax compliance.
• Citizenship is Not Required: QDOTs allow a non-citizen spouse to receive trust income without immediately paying estate taxes or needing to become a U.S. citizen.
• Other Strategies Exist: Lifetime gifting or obtaining U.S. citizenship before estate settlement can also help reduce tax burdens.

Protect Your Estate with Experienced Legal Guidance

At The Werner Law Firm, we specialize in estate planning for families with international ties. Our experienced estate planning attorneys in Los Angeles can help structure your estate to minimize taxes while ensuring that your loved ones receive the protection and financial support they need.

If you have any questions, schedule a free appointment with us through our online appointment page.

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Reference: Investopedia (March 28, 2021) “Qualified Domestic Trust (QDOT): Definition and How It Works”