Our International Estate Planning Attorneys Outline the Pitfalls of Qualified Domestic Trusts
A Qualified Domestic Trust (QDOT) is a type of trust used in estate planning when one spouse is a non-U.S. citizen to allow the non-citizen surviving spouse to qualify for the marital deduction on estate taxes that would otherwise be unavailable. However, relying on a QDOT for your estate planning has some risks you should consider before determining the best approach for your needs. At MEG International Counsel, we urge all of our ultra-high-net-worth clients with family and business interests in both the United States and Mexico to work with our international estate planning attorneys to develop plans that are tailored to their unique circumstances.
4 Ways a QDOT Can Put Your Estate Plan at Risk
- Complexity. QDOTs can be complex to set up and maintain. They require careful adherence to IRS regulations, and the trustee must ensure compliance with these rules. There are also administrative costs to consider.
- Income taxation. Income generated by the QDOT is subject to regular income tax rates. In some cases, these rates might be higher than if the surviving spouse directly inherited the assets placed in the QDOT.
- Lack of control. If control is important to you, keep in mind that the surviving spouse might have limited control over the assets held in the QDOT. A QDOT requires at least one trustee to be a U.S. citizen or a U.S. corporation. If the assets in a QDOT are valued at more than $2 million, one of the trustees must be a U.S. bank.
- Possible changes in tax laws. Future changes in tax laws or regulations could affect the advantages of a QDOT, potentially reducing its benefits or altering its requirements. Modifying an irrevocable trust such as a QDOT is a complex process.
Before integrating a QDOT into your estate plan, consult with an experienced international estate planning attorney. When you meet with MEG International Counsel, we will evaluate your situation, explain the implications, and help you determine if a QDOT aligns with your specific needs and objectives. Serving ultra-high-net-worth clients with family and business interests in the United States and Mexico or Latin America is our sole focus, which means we understand the complexities of cross-border estate planning. Attorney Antonio Gastélum is licensed in Mexico and Texas, while attorney María Elia Gastélum is licensed in Mexico and California.