Nontrust Forms of Ownership

          Since trusts are not permitted in some countries, it was not possible to create a QDOT in those countries.  TRA ’97 provides the Treasury Department with regulatory authority to treat as trusts legal arrange­ments that have substantially the same effect as a trust.  [IRC §2056A(c)]

.2         Authority to Waive Requirement of U.S. Trustee

          In some countries, trusts cannot have any U.S. trustees.  Conse­quently, trusts established in those countries cannot qualify as a QDOT.  In order to permit the establishment of a QDOT in those situations where a country prohibits a trust from having a U.S. trustee, TRA ’97 provides the Treasury Department with regulatory authority to waive the requirement that a QDOT have a U.S. trustee.  [IRC §2056(a)(1)(A)]

.3         Effective Date

          These provisions apply to the estates of decedents dying after August 5, 1997.

It is expected that the Treasury Regulations will require that sufficient trust assets be subject to U.S. jurisdiction to ensure collection of estate tax with respect to the trust.  For example, the Regulations may require that a portion of trust property be located in the U.S. or that the trustee be an institution with substantial U.S. assets.

5.7.4   Tax Treatment

.1         Imposition of Estate Tax

(A)       Estate tax is imposed on the following:

(1)      The value of corpus distributions from the trust made prior to the date of death of the surviving spouse

(2)      The value of property, which remains in a qualified domestic trust on the date of death of the surviving spouse

(3)      The trust that ceases to meet the requirements listed in 5.7.2

          [IRC §2056A(b)]

(B)       Estate tax does not apply to the following:

(1)       After the surviving spouse becomes a U.S. citizen if:  (a) the spouse was a U.S. resident at the time of the death of the decedent and at all times thereafter; (b) no tax was imposed on a qualified domestic trust distribution before the spouse became a U.S. citizen; or (c) the spouse elects to treat any distribution upon which tax had been imposed as a taxable gift by the spouse to determine the future estate and gift tax liability of the spouse  [IRC §2056A(b)(12)]

(2)       A distribution of corpus from a qualified domestic trust to a surviving spouse if the distribution is made on account of hardship  [IRC §2056A(b)(3)]

(3)       Any distribution to the surviving spouse to the extent that the distribution is to reimburse the spouse for any income tax on trust income to which the spouse is not entitled under the terms of the trust  [IRC §2056A(b)(15)]

.2         Amount of Estate Tax

(A)     The amount of the estate tax imposed by IRC §2056A is the additional estate tax which would have been imposed under IRC §2001 on the decedent’s estate if the decedent’s taxable estate had been increased by the sum of:

(1)      The amount involved in the taxable event; plus

(2)      The aggregate amount involved in previous taxable events with respect to qualified domestic trusts of the decedent; reduced by

(3)      The tax that would have been imposed on the estate of the decedent if the taxable estate of the decedent had been increased by the aggregate amount involved in previous taxable events with respect to qualified domestic trusts of the decedent.  [IRC §2056A(b)(2)]

(B)     If the estate tax for the estate of the decedent spouse has not been finally determined, a tentative tax is imposed by use of the highest estate tax rate in effect as of the date of the death of the decedent.  When the estate tax liability of the decedent spouse is finally determined, the excess tentative tax over the additional estate tax which would have been imposed had the property been included in the estate tax of the decedent is refundable.  [IRC §2056A(b)(2)(B)]

(C)       Multiple Qualified Domestic Trusts

          For more than one qualified domestic trust with respect to a decedent, the amount of estate tax imposed is calculated by use of the highest tax rate in effect at the date of the death of the decedent, unless the executor selects an individual U.S. citizen or domestic corporation to be responsible to file all returns and pay all tax for all trusts and meet the other requirements of the Regulations.  [IRC §2056A(b)(2)(C)]

5.7.5   Compliance

.1       The estate tax imposed due to a distribution is due on the 15th day of the fourth month which follows the calendar year in which the distribution occurs.  The estate tax imposed on a distribution during the year in which the surviving spouse dies and the tax imposed on the death of the spouse is due and payable nine months after the date of the death of the spouse.  [IRC §2056A(b)(5)]

.2       Form 706-QDT was issued in 1991 to report the estate tax required by IRC §2056A and the hardship distributions to the spouse.  The reporting date was September 16, 1991, for taxable events and hardship distributions that took place between November 10, 1988, and January 1, 1991.  After December 31, 1990, the due date is April 15th of the year following the year of the taxable event or hardship distribution.  [Ann. 91-58, 1991-15 IRB 39]

.3       The trustee is personally liable for the estate tax.  Payment from the trust in satisfaction of tax liability is treated as an additional distribu­tion which is subject to tax.  [IRC §§2056A(b)(6) and (11)]

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