Ask a trust officer:
DEAR TRUST OFFICER: With unexpected good fortune, I met my wonderful new wife, Vivienne, on a cruise to Europe. She is a Canadian citizen, and we would like to know whether this has any impact on our estate planning. Are there any special steps that we need to take because she’s not a U.S. citizen?
DEAR ENJOYING: Congratulations and many years of happiness!
What springs to my mind immediately is the need to make arrangements so that you don’t lose your federal gift and estate tax marital deduction. The deduction, which allows tax-free lifetime gifts and bequests between husband and wife, isn’t available when the recipient is not a U.S. citizen (even if he or she is a permanent resident).
But you will be entitled to the deduction if you set up a qualified domestic trust (QDT) and at least one trustee is a U.S. citizen or a domestic corporation (a bank or trust company, for instance). Vivienne would be entitled to all of the trust’s income, estate-tax free (but not income-tax free). However, if the trustee distributes the trust’s assets to her, except in limited circumstances, they will be subject to a tax.
There are other rules as well, some of them fairly technical. I recommend that you seek legal help in setting up the trust. And, if you have any questions about QDTs, I would be glad to answer them.
Do you have a question concerning wealth management or trusts? Send your inquiry to mlinsner@tckansas.com.
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