On Aug. 21, 2024, the Internal Revenue Service published proposed amendments to the regulations under Internal Revenue Code Section 2056A that relate to QDOTs.
In general, there’s no marital deduction for property passing to a non-citizen spouse. However, IRC Section 2056A provides that a QDOT (a certain type of marital trust) will qualify for the marital deduction if it includes certain administrative requirements and the proper election is made on the estate tax return. The administrative requirements include, among others, maintaining a U.S. citizen trustee, in some cases having an institution or bank as trustee and withholding estate taxes on distributions of principal. A QDOT is necessary when property passes from a decedent to a non-citizen spouse to qualify for the marital deduction that would otherwise be denied to such spouses.
The primary purpose of these amendments is to refresh outdated terminology, references, responsible parties and procedures. The amendments detail the following changes:
- Updating References to 1995 temporary regulations. The amendments propose updating references throughout the 1995 temporary regulations to the currently effective version.
- Updating definitions. The definition of “finally determined” for establishing the value of assets within a QDOT is updated to align with current IRS practices. Specifically, the new definition excludes references to an “estate tax closing letter,” which the IRS no longer requires.
- Updating IRS offices, officials and filing locations. The amendments correct outdated references to IRS officials, offices and specific filing locations. For example, the term “District Director” and references to the “Assistant Commissioner (International)” are replaced with current titles such as the “Chief Tax Compliance Officer, IRS.”
- Updating procedures for filing security instruments. The amendments revise the procedures for filing security instruments required under QDOT provisions, such as bonds. These documents must now be submitted directly to the Estate Tax Advisory Group rather than being attached to the decedent’s estate tax return.
- Updating references to the Uniform Customs and Practice for Documentary Credits. The references to the Uniform Customs and Practice for Documentary Credits have been updated from the 1993 revision to the most recent version.
- Filing locations and methods. The amendments provide updated instructions for where and how to file essential documents with the IRS, directing practitioners to IRS Publication 4235 or the IRS website for the correct filing locations.
These proposed changes seek to refresh and clarify the regulations to better serve current practitioners and ensure proper QDOT administration.
