When a U.S. citizen leaves an inheritance to their spouse, the estate is typically exempt from federal estate taxes under the unlimited marital deduction. Regardless of the size of the decedent's estate, there is typically no estate tax due on transfers between spouses.  However, this deduction does not automatically apply when the surviving spouse is a non-U.S. citizen. Without proper estate planning, a non-citizen spouse could face significant tax burdens, making it difficult to access inherited assets.

A Qualified Domestic Trust (QDOT) provides a crucial solution, allowing non-citizen spouses to defer estate taxes while ensuring financial stability. Understanding how QDOTs work and when to use them can help families navigate the complexities of cross-border estate planning.

Why Non-Citizen Spouses Face Estate Tax Challenges

Under U.S. tax laws, only citizen spouses qualify for the unlimited marital deduction, which allows them to inherit assets without immediate estate tax consequences. If a non-citizen spouse inherits assets exceeding the federal estate tax exemption—$13.99 million in 2025—the excess amount could be subject to a 40% estate tax.

It requires additional safeguards because the IRS is concerned that a non-citizen spouse might leave the U.S. with untaxed inherited assets. A QDOT provides this protection by ensuring that estate taxes are handled adequately, while allowing the surviving spouse to benefit from the inheritance.

How a QDOT Works

A Qualified Domestic Trust is a special type designed to hold assets inherited by a non-citizen spouse, while deferring estate taxes. The trust operates as follows:

1. Establishing the QDOT: The U.S. citizen spouse creates the trust as part of their estate plan, naming the non-citizen spouse as the beneficiary.
2. Funding the Trust: Upon the citizen spouse’s death, assets are transferred into the QDOT, instead of being given directly to the non-citizen spouse.
3. Trustee Oversight: At least one trustee must be a U.S. citizen or U.S. financial institution, ensuring that the IRS retains oversight.
4. Income Distributions: The non-citizen spouse can receive income from the trust without immediate estate tax consequences.
5. Principal Distributions and Estate Taxes: If the spouse needs to withdraw principal, estate taxes may apply unless a hardship exemption is granted.

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

QDOTL Requirements and Benefits for a QDOT

For a trust to qualify as a QDOT, it must meet specific IRS requirements, including:

• A U.S. citizen or financial institution must serve as a trustee
• The trust must be established before the estate tax return is filed
• Estate taxes are deferred but not eliminated

1. Preserves Marital Deduction Benefits

A QDOT allows a non-citizen spouse to benefit from the unlimited marital deduction, avoiding an immediate 40% estate tax on inherited assets. Instead, estate taxes are deferred until funds are withdrawn or the surviving spouse dies.

2. Ensures Financial Stability for the Surviving Spouse

Since QDOTs allow non-citizen spouses to receive trust income tax-free, they provide ongoing financial support while ensuring assets remain available for future needs.

3. Avoids Forced Citizenship Decisions

Without a QDOT, a non-citizen spouse must become a U.S. citizen to qualify for the marital deduction. The trust structure allows the spouse to inherit without pressure to change their immigration status.

4. Provides Tax-Efficient Estate Planning

By structuring the estate with a QDOT, families can protect wealth, minimize tax liabilities, and ensure that assets pass smoothly to future generations.

Alternative Strategies for Non-Citizen Spouses

In some cases, a lifetime gifting strategy may be preferable to a QDOT. In 2025, the annual tax-free gift limit for a non-citizen spouse will be $190,000, allowing the U.S. citizen spouse to transfer assets gradually over time.

If the non-citizen spouse becomes a U.S. citizen before the estate is settled, the unlimited marital deduction can apply retroactively, eliminating the need for a QDOT.

Securing a Future with a QDOT

A Qualified Domestic Trust is an essential tool for estate planning when a surviving spouse is not a U.S. citizen. Without proper planning, a non-citizen spouse may face significant tax burdens and difficulty accessing inherited assets. Consulting an experienced estate lawyer can help ensure that a QDOT is properly structured to protect assets while maintaining financial security.

Key Takeaways

• Estate Tax Risks for Non-Citizen Spouses: The unlimited marital deduction does not automatically apply when a surviving spouse is not a U.S. citizen.
• QDOTs Defer Estate Taxes: A properly structured QDOT allows assets to transfer tax-free initially, with estate taxes applying only when principal is withdrawn or upon the spouse’s death.
• Trustee Oversight is Required: At least one trustee must be a U.S. citizen or financial institution to ensure compliance with U.S. tax laws.
• Financial Stability Without Citizenship Pressure: QDOTs allow non-citizen spouses to receive trust income without immediately paying estate taxes or needing to become U.S. citizens.
• Alternative Strategies Exist: Lifetime gifting or obtaining U.S. citizenship before estate settlement can also help minimize tax burdens.

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