Do you have clients who are married and one or both of the spouses are a resident of the U.S. but a citizen of another country?
Did you know that if their aggregate net worth is larger than one individual’s applicable exclusion amount, they could face a challenge in the planning of their estates that is not faced by U.S. Citizens?
For example, you have a couple that have an estate value of $4 million but the wife is not a U.S. citizen.
Their attorney advised that to avoid estate tax under the unlimited marital deduction, any property passing to her at the husband’s death will need to pass into a specialized marital trust called a qualified domestic trust (QDOT). The attorney also mentioned that the QDOT has restrictions and limitations not imposed on marital trusts provided to U.S. citizens.
The attorney tells the wife that while she will be entitled to receive the income produced by the assets in the QDOT, if she takes distributions of principal, the distributions are likely to be subject to estate tax at the husband’s tax rate of 35%.
Consequently, the wife would only net a small amount of any principal distribution.
What is the solution to avoid the restrictions and taxation of the QDOT?
A simple solution is to have the non-citizen spouse (in this case, the wife) to purchase a policy insuring the life of the other spouse.
The wife would be the owner and beneficiary of the policy and would receive a death benefit estate tax-free. She would have the flexibility to invest the proceeds and use the income and principal as she desires free from any QDOT restrictions.
On top of that, she will have the income from the assets in the QDOT, but she will not be totally dependent on the QDOT for her lifestyle.
For more information on this estate plan or other Life Insurance sales ideas please contact your Sales & Marketing Manager.