[WSBAPT] QDOT Planning in Washington

[Sam Furgason]

Jacob,

The short answer is yes. 

However, you need to be aware of IRC Sec. 2523(i), which disallows the marital deduction for gifts to a non-citizen spouse, and instead increases the 2503(b) annual exclusion amount to $100,000. This means that a (present interest) gift exceeding $100,000 in any one year will require filing a gift tax return, and reducing the citizen spouse’s applicable exclusion amount by the excess. Since the current estate and gift tax exemption is north of $5,400,000, and since the State of Washington does not have a gift tax, the husband can give a sufficient amount to the surviving spouse to reduce his taxable estate below the Washington exemption. Of course, then the wife, assuming she survives the husband will have an estate greater than the state allows, and will probably be taxed in a higher bracket. There might be a better way, using husband’s federal exemption and a non-QDOT trust. 

Since QDOTs are a deferral of the tax on the citizen’s estate until the non-citizen spouse’s death, in this situation they might be better off, assuming the husband can manage without the excess over $2,079,000 (currently– must be below $2,000,000 to avoid having to file a WA return) to make a gift to a trust and use some of his available federal exemption amount.  The drawback is he cannot retain any interest in the trust or it will be pulled back into his estate. The plus is that if he gives away all interest, including a remainder or income interest, to the trust, he can have the trust pay out to his spouse for life, protect the trust assets from her creditors, and have them pass to whomever he wants upon her death, all without federal or state estate taxes. That way you avoid a WA QDOT. His estate could later pass into the same trust for distribution following his death. Keep in mind that the QTIP and QDOT trusts are only needed when necessary to take advantage of marital deduction when the normal gift and estate tax exemptions are inadequate. 

S  

List contributions are not legal opinions, but off the cuff remarks which should be thoroughly reviewed with a qualified practitioner before taking any action.

                                                                                                                                                                                 

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Jacob Menashe
Sent: Friday, April 01, 2016 12:38 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] QDOT Planning in Washington

 

The situation: Husband is a US citizen. Spouse is not. They are Washington residents and have $5,000,000. Can Husband, during life, give Spouse $1,000,000, and thus avoid a Washington QDOT since his half of the $4,000,000 left will just be $2,000,000. I’m scratching my head and thinking the answer is yes, but I doubt if it’s that easy. (And realize that may be the tenor of the responses I get!) All responses though are appreciated!

 

Thank you, 

 

Jacob Menashe

 

_____________________________

Jacob H. Menashe

Hickman Menashe, PS

4211 Alderwood Mall Blvd., Suite 202

Lynnwood, WA 98036

(425) 744-5658 phone

(425) 744-6078 fax

Satellite Office in Bellevue

www.hickmanmenashe.com

 

 

 

 

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