My husband is not an American citizen. Can we still have a trust?by William J. Sweeney on 03/31/15
(Mr. Sweeney is an attorney licensed in California. The comments below are not intended as legal advice for any specific situation and may not accurately reflect the law in other jurisdictions. There may have been changes in the law since this was written. You should always consult an attorney in your own jurisdiction.)
The answer is yes, but there are some things you need to know.
If a couple creates a revocable trust and one of them is not a U.S. citizen, some different rules apply. Initially, it would be treated like any other trust. In the event the non-citizen spouse is the first to die, no particular special action is necessary, the trust would be handled just as any other trust would be handled when one spouse dies.
The difference arises if the citizen spouse is first to die. By way of background, the U.S. tax law provides that for a married couple, no estate taxes are due on the death of the first spouse, irrespective of the amount of assets. This is called the "Unlimited Marital Deduction". Any tax due would be payable at the time of the surviving spouse’s death.
Non-citizens are not automatically provided this type of deduction. Because of concerns the U.S. government has that a surviving, non-citizen spouse might leave the country without paying any taxes due, special requirements are in effect. The non-citizen can have what is called a "Qualified Domestic Trust" otherwise known as a "QDOT" trust. These requirements allow the non-citizen to remain as a trustee of the trust, but require that either a citizen of the United States, or a U,S, corporation serve as a co-trustee. There are also requirements that the citizen trustee has the authority to withhold from any distributions, an amount sufficient to pay any taxes. If the assets exceed a certain amount, a bond or Letter of Credit may be required to assure payment of taxes. Other rules and regulations apply, however they are too technical for these comments.
Canadian citizens are afforded another option in lieu of the QDOT trust should they wish to avail themselves of it. It is a simpler procedure, but there are time limits when elections have to be made or the choice can be forfeited.
The bottom line is, if you are a non-citizen of the United States you need to talk to a qualified attorney regarding the necessary steps to take to avoid having tax payments become due prematurely.
It is simple to address these issues by contacting an experienced attorney.
William J. Sweeney
Attorney at Law
915 Highland Pointe Dr., Ste. 250
Roseville, CA 95678