There are numerous different Trusts that are used in the field of estate planning, and in this post we would like to look at Qualified Domestic Trusts.
Let’s explain a bit about the estate tax parameters to provide the background that is necessary to understand why someone would want to use a Qualified Domestic Trust.
There is a federal estate tax exclusion, and it stands at $5.34 million in 2014. The maximum rate of the tax is 40%. Unless you take steps to gain estate tax efficiency anything that you pass along to others that exceeds $5.34 million would be subject to the estate tax.
That is, anyone other than your spouse assuming your spouse is a United States citizen.
There is an unlimited marital deduction. Because of this you can bequeath any amount of money to your spouse free of the estate tax without reducing the amount of your exclusion that can be applied to bequests to others.
However, if your spouse is not a United States citizen you are not allotted this unlimited deduction.
Now, back to Qualified Domestic Trusts. If you are married to someone who is not a citizen of the United States you could convey assets into one of these trusts and name your spouse as the beneficiary.
After you die the trustee that you choose when you create the Trust agreement distributes assets to your surviving spouse out of the earnings of the trust. These distributions can be made free of the estate tax.
Distributions of the principal would be subject to the estate tax tax unless an IRS approved hardship was present. For more information, please contact The Zimmer Law Firm for a complimentary consultation 513.721.1513.