Legal Question in Wills and Trusts in Illinois

Re: Estate tax law liability when surviving spouse is not US citizen

When a person dies, everything they leave their spouse in a qualifying form (see below) is deductible. After subtracting that (and charitable deduction, as well as debts and expenses) the first $1,000,000 is tax-free. That is not affected by the non-citizenship of the surviving spouse.

A bequest to a non-citizen spouse will not qualify for the marital deduction unless it is in the form of a Qualified Domestic Trust (QDOT in our world of acronyms).

*Briefly* such a trust restricts payment of principal and requires a US citizen trustee who will be responsible for paying the tax at the survivor's death (at which time it will be taxed not in the survivor's estate as with most couples, but at the first person's rate).

The theory behind this was to prevent deduction at the first death and then the survivor returning home and their estate never being subject to US estate tax, so the assets miss US tax completely.

Within the premises, the QDT provisions contain one of the most rational rules I've seen in this area. Even if the assets are left outright to the non-citizen survivor, which normally wouldn't qualify for the deduction, the estate may still deduct it if the survivor turns around and, within 9 months, *creates* a QDT.