The Basics of a Qualified Domestic Trust

A qualified domestic trust is a type of estate planning tool that can be used to avoid paying taxes on an estate when an individual passes away. This type of trust is typically used by couples in which one of the spouses is not a citizen of the United States. Here are the basics of the qualified domestic trust.

Qualified Domestic Trust

When both spouses in a couple are US citizens and one of them dies, the assets can transfer to the survivor without any worry about estate taxes. However, when the surviving spouse in a marriage is not a US citizen, the estate is taxed before any of the money can be passed on to the surviving spouse. This creates a situation in which as much as 45 percent of the estate can go to the government instead of to the surviving spouse. With a qualified domestic trust, the couple can get around this rule.

How It Works

With this type of mechanism, the couple can transfer their assets into a qualified domestic trust. Then if the spouse who is a US citizen dies first, the other spouse can use the assets in the trust.

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