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made. However, if the surviving spouse

The U.S. trustee must furnish a bond in

attaching such a statement to Form

died during the year or if the trust ceased

favor of the Internal Revenue Service in

706-QDT.

to qualify as a QDOT during the year, the

an amount equal to 65% of the fair market

Filing a Bond or Letter of Credit

tax on those events and on any taxable

value of the trust assets; or

distributions occurring during that

The U.S. trustee must furnish an

If the bond or letter of credit arrangement

calendar year is due within 9 months

irrevocable letter of credit issued by a

is selected, the executor must have filed

following the date of death or the failure

the bond or letter of credit with the Form

bank in an amount equal to 65% of the

to qualify.

706 or 706-NA on which the QDOT

fair market value of the trust assets.

If the QDOT qualifies, you may elect

The trust instrument may also meet this

election is made.

under section 6166 to pay the tax in

requirement by specific reference to the

The U.S. trustee must provide a written

installments. You may make either a

applicable paragraph of Regulations

statement with the bond or letter of credit

protective or final election by checking

section 20.2056A-2(d).

listing the assets that will fund the QDOT,

“Yes” on line 3 of Part II, Elections by the

the values of the assets, and whether any

The QDOT may alternate between any

Trustee/Designated Filer, and attaching

exclusions for a personal residence are

of these arrangements provided that one

the required statements. See the

being claimed.

of the arrangements is operative at any

instructions for line 3 on page 3 for

given time. The QDOT may give the

Additional Information

additional information.

trustee the discretion to use any one of

Make the check payable to “United

the security arrangements, or may limit

For more information, including additional

States Treasury.” Write the surviving

the trustee to using only one or two of the

requirements for a bond and letter of

spouse's social security number and

arrangements.

credit, details on the exclusion of a

“Form 706-QDT” on the check to assist

personal residence, rules on the

Assets of $2 Million or Less

us in posting it to the proper account.

disallowance of the marital deduction for

substantial undervaluation of QDOT

If the estate tax value of the assets

Signature

property, rules regarding foreign real

passing to the QDOT is $2 million or less

(determined without regard to any

property, and certain annual reporting

If the trustee is filing the return and there

indebtedness), the trust instrument must

requirements (concerning ownership of

is more than one trustee listed, all listed

foreign real property, cessation of use of

require that the trust meet at least one of

trustees must verify and sign the return.

a personal residence, and look-through

the following conditions at all times during

All trustees are responsible for the return

rules applied to the ownership of foreign

the term of the QDOT:

as filed and are liable for penalties

real property), see Regulations section

That no more than 35% of the fair

provided for erroneous or false returns.

20.2056A-2(d).

market value of trust assets, determined

The trustee/designated filer who files

annually on the last day of the taxable

the return must, in every case, sign the

How To Complete Form

year of the trust, will consist of real

declaration on page 1 under penalties of

property located outside the United

706-QDT

perjury. If you pay someone to prepare

States; or

the return, that person must also sign the

That the trust will meet the

Trustee Filing the Return

return at the bottom of page 1.

requirements described above for QDOTs

If the trustee is filing the complete return,

with assets in excess of $2 million.

Supplemental Documents

prepare it in the following order:

For this purpose, if more than one

1. Part I (page 1), General

You must attach a copy of the trust

QDOT is established for the benefit of the

Information;

instrument to the first Form 706-QDT filed

surviving spouse, the value of all of the

2. Part II (page 1), Elections by the

for the trust. You do not need to attach a

QDOTs is aggregated in determining

Trustee/Designated Filer;

copy of the trust to any subsequent filings

whether the $2 million threshold is

of Form 706-QDT.

3. All of Schedule B (but only lines 1a

exceeded.

and 1b of Part I);

If you are filing the return due to the

Personal Residence

death of the surviving spouse, attach a

4. Schedule A;

copy of the death certificate.

For the purpose of (1) figuring the $2

5. Part III (page 1), Tax Computation.

million threshold, and (2) determining the

Enter only the totals from Parts II–VI of

Penalties

amount of any bond or letter of credit, the

Schedule B in the corresponding “Total”

executor of the decedent's estate can

lines of Schedule A.

Section 6651 provides penalties for both

elect to exclude up to $600,000 in value

late filing and for late payment unless

of real property that meets the following

Trustee Completing Schedule B

there is reasonable cause for the delay.

requirements:

Only

The law also provides penalties for willful

It is used by or held for the use of the

attempts to evade payment of tax.

If a designated filer will file the return, the

surviving spouse as a personal residence;

trustee must complete all applicable parts

Section 6662 provides penalties for

It is owned directly by the QDOT; and

of Schedule B for his or her respective

underpayment of estate taxes of $5,000

It passed or was treated as passing to

trust and provide it to the designated filer

or more that are attributable to valuation

the QDOT under the rules for the marital

at least 60 days before the due date for

understatements.

deduction when the surviving spouse is

filing Form 706-QDT.

not a U.S. citizen (section 2056(d)(2)(B)).

Security for Payment of the

Designated Filer Filing the Return

The $600,000 can include the value of

Tax

any related furnishings.

The designated filer must receive a

Either election may have been made

completed Schedule B from the trustee

Assets in Excess of $2 Million

by the executor on the estate tax return

of every QDOT that has had a reportable

If the estate tax value of the assets

for the decedent's estate. The election to

event or a hardship distribution during the

passing to the QDOT exceeds $2 million

exclude the personal residence amount

tax year. The designated filer then

(determined without regard to any

from the amount of the bond or letter of

summarizes these on Schedule A.

indebtedness), the trust instrument must

credit can also be made prospectively by

Complete the return in the following

require that the trust meet at least one of

the U.S. trustee by attaching a statement

order:

the following conditions at all times during

to Form 706-QDT claiming the exclusion.

1. Part I (page 1), General

the term of the QDOT:

You can also cancel this election whether

Information;

made by the executor or by a trustee, by

At least one U.S. trustee must be a

2. Part II (page 1), Elections by the

bank as defined in section 581;

Trustee/Designated Filer;

Page 2

Instructions For Form 706-Qdt - U.s. Estate Tax Return For Qualified Domestic Trusts - Internal Revenue Service - 2000 Page 2

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