858 / How is the availability of the estate tax marital deduction affected when the surviving spouse is not a United States citizen? What is a QDOT?
Generally, there are five kinds of trusts that will qualify for the marital deduction: (1) the “qualified terminable interest property trust,” (2) the “life estate with power of appointment trust,” (3) the “estate trust,” (4) the “special rule charitable remainder trust,” and (5) the “qualified domestic trust.” The first two and the fourth are specific exceptions to the nondeductible terminable interest rule; the third does not come under the rule; the fifth is the only form permitted if the surviving spouse is not a United States citizen. See Q 857.
A marital deduction is usually not available for a transfer to a surviving spouse who is not a United States citizen unless the transfer is to a qualified domestic trust (QDOT) for which the executor has made an election.1 A QDOT must qualify for the marital deduction under (1), (2), (3), or (4) (above), as well as meet the following requirements.
At least one trustee of the QDOT must be a United States citizen or a domestic corporation and no distribution (other than a distribution of income) may be made from the trust unless that trustee has the right to withhold any additional gift or estate tax imposed on the trust. Additional gift tax is due on any distribution while the surviving spouse is still alive (other than a distribution to the surviving spouse of income or on account of hardship). Additional estate tax is due on any property remaining in the QDOT at the death of the surviving spouse (or at the time the trust ceases to qualify as a QDOT, if earlier). The additional gift or estate tax is calculated as if any property subject to the tax had been included in the taxable estate of the first spouse to die.2