Many Florida couples are in “mixed status” marriages where one spouse is a U.S. citizenship (either through birth or naturalization) and the other holds some type of visa. Oftentimes, the non-citizen spouse is a lawful permanent resident (LPR) with a green card who is on the path to becoming a citizen.
U.S. citizens in mixed-status marriages often hold off on creating an estate plan until their spouse has obtained their citizenship. Others will go ahead and include them in their will – assuming that they have the same inheritance rights as other spouses. In fact, neither of these is generally the best way to proceed – at least without consulting with an estate planning professional.
Non-citizen spouses who are in the country legally can typically be named as beneficiaries of an estate without undue complications. However, if an estate is large enough that it’s subject to federal estate tax ($15 million currently for individuals), there can be significant tax consequences for the estate and the surviving spouse. Note that Florida has no state estate tax.
Under the law, the spouse’s estate owes no federal estate tax on assets passing to the surviving spouse until the surviving spouse’s death. That’s often called a 100% or unlimited marital deduction. However, that applies only if the surviving spouse is a U.S. citizen. If that surviving spouse isn’t a citizen at the time of the death, that marital deduction doesn’t apply. That can mean a tax obligation that significantly lessens their inheritance.
How does a QDOT work?
This complicated concern is one of the reasons why some people place their non-citizen spouse’s inheritance in a qualified domestic trust (QDOT). This type of trust lets non-citizen spouses get the 100% marital deduction as long as they are the sole beneficiary and receive income from the trust. If the QDOT beneficiary goes on to become a citizen, they don’t need to continue to keep the assets in that trust.
Note that the trustee (usually the spouse while they’re alive) and the successor trustee of a QDOT must have U.S. citizenship. If a trust company or financial institution is the trustee, it must be a qualified domestic corporation.
This is just a brief overview of how a QDOT works. It isn’t necessary for those whose estate is nowhere near the federal estate tax threshold. However, it’s still wise to take a non-citizen spouse’s status into consideration when creating an estate plan. Having experienced estate planning guidance can help those in mixed-status marriages to better ensure that they’re in compliance with the law and optimizing the value of their estate accordingly.