My Spouse Is Canadian, Not a US Citizen. Do We Need a QDOT?

If you are a US person married to a Canadian who is not a US citizen, the unlimited marital deduction under IRC 2056 does not apply to transfers to your spouse at death. That deduction is what allows a US citizen married to another US citizen to pass an unlimited amount at death, tax-free, deferring the estate tax until the surviving spouse dies. Without it, your estate faces tax at the first death, potentially at 40% on amounts above the unified credit ($13.99 million in 2025, adjusted annually).

A Qualified Domestic Trust (QDOT) under IRC 2056A is the mechanism that restores the marital deduction for non-citizen spouses. It defers the estate tax, not eliminates it: tax is due when the surviving spouse takes distributions from the QDOT or when the surviving spouse dies. The Canada-US treaty provides an alternative (or complementary) mechanism through a marital credit, but the QDOT is the primary US statutory solution.

Why doesn’t the marital deduction apply?

IRC 2056(d)(1) explicitly provides that the unlimited marital deduction does not apply to property passing to a surviving spouse who is not a citizen of the United States, except through a QDOT. The provision was enacted in 1988 (Technical and Miscellaneous Revenue Act) based on the concern that a non-citizen surviving spouse could take the inherited assets and leave the US, removing them permanently from the US tax base.

The result: if a US person dies and leaves assets to a Canadian spouse who is not a US citizen, the full value of those assets is included in the decedent’s estate and potentially subject to estate tax (after the unified credit). For 2025, the unified credit covers $13.99 million, so estates below that threshold owe no estate tax regardless. But the current exemption is historically high and could decrease in the future (though the permanent TCJA rates under the One Big Beautiful Bill Act locked in the higher exemption structure).

What is a QDOT?

A Qualified Domestic Trust under IRC 2056A is a trust that satisfies specific requirements, allowing the marital deduction for property passing to a non-citizen surviving spouse through the trust:

1. At least one trustee must be a US citizen or US domestic corporation. If the trust holds more than $2 million, one trustee must be a US bank or the trust must provide a bond or letter of credit.
2. The trust must be subject to US court jurisdiction. No distributions of principal can be made unless the trustee has the right to withhold estate tax on the distribution.
3. The executor must elect QDOT treatment on the estate tax return (Form 706).
4. Estate tax is imposed on distributions of principal from the QDOT to the surviving spouse (and on the value remaining in the QDOT at the surviving spouse’s death). This is the deferred tax that the marital deduction postponed.

The QDOT does not eliminate the tax. It defers it. Income distributions from the QDOT to the surviving spouse are not subject to the deferred estate tax (only principal distributions and the final corpus are). So the trust can distribute investment income to the surviving spouse without triggering estate tax, while the principal stays in the trust, subject to tax when it eventually comes out.

What about the annual gift exclusion?

During life, gifts to a non-citizen spouse are not eligible for the unlimited gift tax exclusion that applies between two US citizen spouses. Instead, IRC 2523(i) provides an increased annual exclusion for gifts to non-citizen spouses: $190,000 for 2025 (inflation-adjusted annually). Gifts above that amount use the donor’s lifetime gift tax exemption.

This means annual gift planning during life can transfer wealth to the non-citizen spouse at $190,000 per year without using the lifetime exemption, but the $190,000 limit is far lower than the unlimited deduction that two US citizen spouses enjoy.

What does the treaty provide?

Article XXIX B of the Canada-US tax treaty provides additional estate tax relief for cross-border situations. Two provisions are relevant:

Article XXIX B(2): a pro-rata unified credit for the estate of a Canadian resident (non-US-citizen) with US-situs assets. This is the provision that helps Canadian estates with US property (covered in the estate tax guide).

Article XXIX B(3): a marital credit that can provide additional relief when the decedent was a US citizen or resident and the surviving spouse is a Canadian resident. The credit effectively allows a portion of the estate passing to the non-citizen spouse to be sheltered, but it does not replicate the unlimited marital deduction. The mechanics are complex and depend on the estate’s total value and the portion passing to the surviving spouse.

The treaty credit and the QDOT are not mutually exclusive. For a large estate, the QDOT defers the tax, and the treaty credit may reduce it. For a smaller estate, the treaty credit alone (combined with the unified credit) may eliminate the tax entirely, making the QDOT unnecessary.

What if the non-citizen spouse becomes a citizen?

If the surviving spouse becomes a US citizen before the estate tax return is due (nine months after death, plus extensions), the unlimited marital deduction applies and no QDOT is needed. If the surviving spouse becomes a citizen after the estate tax return is filed but the QDOT is already in place, the QDOT can be dissolved and the deferred tax obligation ends once the spouse is a citizen.

This creates a planning incentive for the non-citizen spouse to pursue US citizenship, particularly where the estate is large enough that the QDOT mechanics create meaningful complexity and cost.

What about Canadian estate treatment?

Canada does not have an estate tax. Canada has a deemed disposition at death: the deceased is deemed to have disposed of all capital property at fair market value immediately before death, and capital gains tax applies on the difference between FMV and ACB. The spousal rollover under ITA 70(6) defers this deemed disposition when property passes to the surviving spouse (or a spousal trust), regardless of the spouse’s citizenship.

The Canadian side does not care whether the spouse is a US citizen or a Canadian citizen. The spousal rollover applies either way. The QDOT question is purely a US estate tax issue.

For a US person with a Canadian spouse, the interaction is: US estate tax (deferred through QDOT) and Canadian deemed disposition (deferred through spousal rollover) are two separate deferral mechanisms that operate independently. A broader look at the tools available on both sides is in the cross-border estate planning guide.

What should I do next?

If you are a US person married to a non-US-citizen, get an estimate of your estate value. If it is above the unified credit (currently $13.99 million), a QDOT is almost certainly needed. If it is below the credit, the QDOT may not be necessary, but the $190,000 annual gift exclusion is still worth using. Either way, your estate plan should address the non-citizen spouse issue explicitly, because the default (no marital deduction) produces the worst result.

• US estate tax for Canadians: the $60,000 exemption, the treaty credit for Canadian-resident estates
• Can I keep my US brokerage and IRA after moving to Canada?, because US-situs assets create estate exposure
• I’m American and moving to Canada for the first time, the broader planning checklist

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.