A popular tool used to defer estate tax for property passing to non-citizen spouses is transferring property to a qualified domestic trust or “QDOT”. If property does not pass directly from a decedent to a QDOT, a surviving non-citizen spouse who would otherwise receive property outright may still have the ability to qualify that property for the marital deduction. The spouse would need to transfer or irrevocably assign the property to the QDOT, provided the assignment occurs before the deceased spouse’s estate tax return is filed.
In a recent private letter ruling (PLR 202332013), the decedent’s estate requested a waiver of the requirement for the actual transfer of the interest to a QDOT and the IRS granted the waiver. In that case, the surviving spouse had become a U.S. citizen before the date that was one year after the due date (including extensions) for filing the estate tax return.
It is important to remember that different estate tax rules apply when leaving property to a non-citizen spouse. Practitioners should always make sure to find out the citizen status of their clients.
The PLR can be found below: