Legal Question in Wills and Trusts in District of Columbia

Re: Non-us citizen beneficiary

Dear Madam:

This is in response to your email of June 14, 2001, which this office received on June 28, 2001.

The federal estate tax is imposed on taxable estates of every decedent who is a citizen or resident of the United States. The unlimited marital deduction allows you to transfer assets to your spouse during your lifetime or upon death without federal estate or gift tax consequences. Until 1988, this was true regardless of your spouse�s citizenship. In 1988 Congress changed the rules to deny a marital deduction for assets passing to a surviving non-citizen spouse. Under certain circumstances, the marital deduction may still be available to defer federal estate taxes until the surviving spouse�s death:

1. If the surviving spouse becomes a U.S. citizen; or

2. If a Qualified Domestic Trust (QDOT) is used. The purpose of the QDOT is to ensure that the property held by the trust will be subject to federal estate taxation at the death of the non-citizen spouse.

One of two methods must be followed for the QDOT to qualify under the rules:

1. The property passes to the QDOT for the benefit of the surviving spouse: or

2. The property passes directly to the surviving spouse, but the surviving spouse transfers these assets to the QDOT.

Please be advised that these rules are subject to change and will likely be changed in the very near future. At this time, it is unclear what the detail of those changes will ultimately be. However, these changes put you and many others in a difficult situation with regard to estate planning because you may undertake complex estate planning at significant expense only to find that the rules governing such planning have been dramatically changed thereby affecting your plan.

Sincerely,

Michael D. Eberth

(313) 561-5700

[email protected]