posted on 06-06-2019

Qualifying Domestic Trust (QDOT)

Updated October 1, 2019

What is a Qualifying Domestic Trust (QDOT)?

A qualifying domestic trust (QDOT) is a trust that allows non-citizens to obtain a marital deduction.

How Does a Qualifying Domestic Trust (QDOT) Work?

For example, let's assume that John Doe is a U.S. citizen and his wife, Jane Doe, is not. Together, they have assets of $10,000,000. One day, John dies. Because he had a qualifying domestic trust, Jane receives a marital deduction and therefore does not have to pay estate or gift taxes when she inherits all of John's assets. 

Furthermore, John is able to direct the trust so that Jane receives income from it for the rest of her life but does not control the principal. The QDOT provides that when Jane dies, the principal in the trust goes to the scholarship fund at John's local community college.

QDOTs only apply to spouses of people who died after November 10, 1988. At least one trustee must be a U.S. citizen or a U.S. corporation that is allowed to retain estate tax out of the trust assets.

Why Does a Qualifying Domestic Trust (QDOT) Matter?

When two people are married to each other and are both U.S. citizens, they can transfer an unlimited amount of property and money to and from each other without being subject to estate taxes or gift taxes. This is called the marital deduction

Spouses without citizenship aren't eligible for the marital deduction, meaning that they must pay taxes on the property they obtain from their spouses upon their spouses' death. QDOTs alleviate this problem, and they allow their founders to direct the use of funds after their deaths and after the deaths of their surviving spouses.