Qualified Domestic Trusts - No Silver Bullet Solution for Cross-Border Estate Planning

The Qualified Domestic Trust or QDOT has for years been an essential tool of cross-border estate planning. However, US non-citizen married couples and estate planning practitioners alike may be lulled into a false sense of security with the QDOT.

The QDOT is great as far as it goes. It grants a non-citizen spouse a privilege akin to the unlimited marital deduction under Section 2056 of the Internal Revenue Code. Without a QDOT, assets transferred from the decedent to the surviving spouse may be subject to estate tax. After December 31, 2012, a surviving spouse could find her retirement assets (and her heirs could find their inheritance) reduced by more than half (maximum tax rate: 55%). A QDOT, properly drafted and properly utilized at death, should avoid that estate tax nightmare. However, the QDOT has some noteworthy deficiencies.

Marijuana, Green Cards, and Cross-Border Planning

For generations, immigrants to the U.S. have undergone a medical exam. For most, the exam has been an uneventful step in the long road to a green card. That medical exam is much more interesting now. The current CIS medical exam form (I-693) solicits information about prior drug use (Civil Surgeon Worksheet, Section 3).

The physician instructions that accompany the form discuss the circumstances under which drug abuse or addiction would be a medical ground for inadmissibility (denial of a green card application). What the medical exam form instructions do not explain is that there is also a  criminal ground for inadmissibility based on simple possession. Translation: in the course of explaining to the physician that you are not and never were addicted to marijuana, you concede that you used marijuana--and that can get you excluded. 'Sound a little unfair?? Welcome to the twisted world of marijuana and cross-border planning!

Cross-Border Planning: "What Could Possibly Go Wrong?..."

To investors, retirees, and executives planning cross-border activities, it may look oh, so simple. Occasionally, thinking out loud, one asks "What could possibly go wrong?" And I cannot help but recall this quotation:

"When anyone asks how I can best describe my experience in nearly 40 years at sea, I merely say, uneventful. Of course there have been winter gales, and storms and fog the like... but in all my experience, I have never been in any accident of any sort worth speaking about... I never saw a wreck and never have been wrecked, nor was I ever in any predicament that threatened to end in disaster of any sort. You see, I am not very good material for a story..."

-- Captain Edward J. Smith, RD, RNR (Commander, RMS Titanic)

Many thanks to Joe Grasmick, Canada-US immigration attorney, for this quotation.

Naturalization - The Other Five Year Rule

Just a reminder that there is another five year rule associated with naturalization that we often forget about: good moral character for the five years (three years for spouses of US citizens) immediately prior to filing the naturalization application. Many cross-border practitioners probably assume that high net worth Canadians always meet this requirement. Bad assumption. 

Arrests, charges, and criminal convictions of any kind and at any time in the client’s life must be noted on the naturalization application and may affect the good moral character assessment, whether or not the “bad conduct” occurred during the five year period before filing (sounds unfair, doesn’t it?). Almost any arrest or conviction merits a consultation with an immigration attorney who is highly experienced in naturalization matters.

Clients Need to Encourage Teamwork

Clients ought to encourage the professionals in their lives to "play well together in the sandbox": to meet, talk, and share client information.

"...Collaborating is just an excuse for running up higher hourly fees..."

How short-sighted!

When the lawyers, accountants, and insurance agents on both sides of the border don't talk with each other, working with blinders on, their cross-border clients can miss tremendous opportunities and face stiff penalties--in effect burning tens or hundreds of thousands of dollars on the barbie.

"I just deal with the immigration issues..."

I heard it again yesterday.

"It's not my area, it's not my problem..." 

Professional services are so compartmentalized! Professionals impose boundaries on their expertise and their services. They have to. They cannot be, know, and do everything. But do the boundaries make sense? Do the boundaries exist in the real world? 

If the boundaries don't reflect real world boundaries, then the professional's advice and efforts are going to reflect ARTIFICIAL distinctions. Is that a problem? Not necessarily, one might say, particularly when the client's troubles are few and within a narrow subject area.

HOW DOES THE PROFESSIONAL KNOW THE CLIENT'S TROUBLES ARE FEW AND NARROW IF THE PROFESSIONAL CONFINES HIS/HER ASSESSMENT TO A NARROW FIELD? 

The blind are leading the blind.

Many if not most client needs have a ripple effect: they give rise to other issues and they themselves are caused by other issues. Client needs are almost inherently multi-issue and multidisciplinary. Any professional who denies this is asking for trouble--trouble for himself/herself and for the client. 

Fine, have the guts to tell the client that. Broaden your knowledge base, enough so you can spot issues outside of your perceived area of expertise. And collaborate with other kinds of professionals to serve the client properly.