If you are fortunate enough to have amassed a moderate to large estate that you plan to leave to a spouse and/or future generations you likely already know that without careful estate planning you could lose a significant portion of that estate to federal gift and estate taxes. If you are married you may be planning to use the unlimited marital deduction to pass assets to your spouse. If, however, your spouse is not a citizen of the United States the marital deduction will not work to protect your assets. Instead, you may wish to consider creating a QDOT trust.
When you die your estate will need to go through the legal process known as probate. During probate, all assets in which you had an ownership interest at the time of death must be identified, located and valued. The cumulative value of those assets is then subject to federal gift and estate taxes to the extent those assets exceed the lifetime exemption, currently set at $5.34 million for 2014. Assets that exceed the lifetime exemption limit may be taxed at up to 40 percent, meaning your estate could lose a significant amount of your heard earned assets to taxes. For most taxpayers, assets that exceed the lifetime limit can further be protected by passing those assets to a spouse using the unlimited marital deduction. The Internal Revenue Code, however, precludes using that tactic if your spouse is not an American citizen.
A QDOT trust is one way to resolve the issue of a non-citizen spouse in your estate plan. A QDOT trust is fundamentally the same as most other trusts in that you appoint a Trustee, name beneficiaries, and designate assets to fund the trust. Your home may even be transferred into the trust. After your death, your spouse may benefit from the interest income earned from the trust but may not touch the principal of the trust except in limited circumstances. Your spouse may even remain in the family home until his or her death by creating a life estate. When your spouse dies, the trust assets are then distributed to the named beneficiaries, typically children or grandchildren.
If you have additional questions or concerns trusts, or your Illinois estate plan in general, contact the experienced Illinois estate planning attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.
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