"You always have to plan for the possibility your client is not going to come back to you in a timely fashion if there has been some kind of big change in the family," Weigandt says, "so you’re trying to draft to take into account all the possibilities." If an international couple invests the time to establish a plan of this nature, the surviving foreign spouse can enjoy nearly the same advantages that the surviving U.S. spouse would, even if the spouse forgoes U.S. citizenship.

Assets placed in QDOTs are shielded from estate taxes. As with citizenship applications, foreign-born spouses may establish QDOTs up to nine months after the death of a spouse. "The QDOT is really mandatory unless you’re willing to pay an immediate estate tax," says Sharon Klein, vice president and trust counsel with New York-based Fiduciary Trust Company International.

TAX BURDENS ON FOREIGN NATIONALS
NON-U.S. CITIZEN INVESTING IN THE U.S. Mr. Silva, a resident of another country who has never visited the U.S., dies owning:
	value
Stock in U.S. corporations (Microsoft, Intel, etc.)	$3,000,000
Lifetime exemption	$60,000
U.S. estate tax (payable nine months after the date of death)	$1,227,800
Net to heirs	$1,772,200
NON-U.S. CITIZEN LINVING IN THE U.S.
	value
Direct ownership of stock in U.S. corporations	$3,000,000
Direct ownership of non-U.S. assets (in home country or another country)	$5,000,000
Total estate	$8,000,000
Lifetime exemption	$2,000,000
U.S. estate tax	$2,760,000
Net to heirs	$5,240,000
Source: WTAS — Wealth and Tax Advisory Services, member HSBC Group Marginal rate is currently 46%. Examples focus on U.S. federal taxes only and do not take into account deductions for administrative expenses and other regular deductions assuming the surviving spouse is not a U.S. citizen.

These trusts do have several drawbacks. Some couples balk at the thought of handing over administrative control of their estate to a U.S.-based trustee, most often of the corporate or institutional variety. "A lot of people do not like the idea of having to have a relationship with a trustee, because you then have to call that person every time you want a distribution," says Christopher Byrne, a managing director with HSBC’s Wealth and Tax Advisory Services in New York. "That’s where people start to get upset with it."

Moreover, tapping the principle of a QDOT will trigger an estate tax levy unless the beneficiary can prove financial hardship. It is also difficult to hold real estate investments–especially those involving property abroad–in these trusts. Finally, establishing a QDOT makes it more difficult to perform any additional estate planning.

A strategy that relies on life insurance gets around some of these problems. The couple places cash in an irrevocable trust and uses it to fund the premiums on enough life insurance to cover the projected amount of estate tax. If structured properly, the death benefit of the life insurance paid to the trust will not be subject to estate tax, Byrne explains. A term-life policy might work best, especially for foreign-born spouses who plan on staying in the U.S. only for a fixed period of time, he adds.

Couples may also transfer assets during their lifetime. The U.S. citizen may currently give $120,000 per year, indexed to inflation, to a nonresident alien spouse without facing gift tax penalties, notes Bill Forsyth, managing director and senior fiduciary counsel with Bessemer Trust in New York. Other methods to avoid gift taxes, such as grantor retained annuity trusts, can also be useful. "You would try to do as much lifetime planning as you could," he notes.

Couples residing in community property states have an advantage. These states, such as California, Texas and Arizona, already consider spouses to own equal shares in one another’s earned assets, even if one spouse has a much higher income than the other.