Long Island Elder Law & Estate Planning

There are many acronyms that are used in estate planning to represent certain legal devices. One of these is the QDT, which stands for a qualified domestic trust.

To understand why a QDT may be useful you should know a bit about the federal estate tax. After the enactment of the American Taxpayer Relief Act of 2012 parameters were put into place that are said to be permanent in that they have no particular expiration date.

This does not mean that subsequent legislation could not change things, but that’s another story.

We currently have a $5.25 million federal estate tax exclusion that is subject to adjustments for inflation. The top rate of the federal estate tax is 40%.

Anything that you bequeath that exceeds $5.25 million would be subject to the estate tax if you did not do anything to position these assets with tax efficiency in mind.

That is, anything that you bequeath that is not going to your spouse. We have an unlimited spousal deduction. As a result, you can arrange for the transfer of any amount of money to your spouse free of the estate tax.

There is one catch: the spouse in question must be a United States citizen. Many people spend time abroad for work or for other reasons. Some singles specifically reach out to people who are citizens of other countries when they are looking for companionship.

This is where the QDT or qualified domestic trust comes in. Though the unlimited estate tax deduction does not apply to spouses who are not United States citizens, you could make such a spouse the beneficiary of one of these trusts.

If you do this properly the beneficiary would receive distributions from the earnings of the trust, and this income would not be subject to the estate tax though regular income taxes would be applicable.

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About Mark S. Eghrari, Estate Planning Attorney

Mark S. Eghrari is an attorney in private practice in Smithtown, New York. He has been in practice since 1988. Mark S. Eghrari provides extensive estate and tax planning services to individuals and businesses. Mr. Eghrari’s primary focus is helping clients avoid probate, minimize or eliminate Federal and State Estate taxes and protect their assets from the high cost of nursing care, if they become ill.