Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return Page 12
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55decedent's family during 5 of the 8 years
period of time that equals at least 5 of
individual, the individual's spouse, or a
before the decedent's death;
the 8 years preceding death.
parent of the individual; or
The spouse, widow, or widower of
6. There was material participation
Directly owned property leased by
any lineal descendant described above.
by the decedent or a member of the
the decedent to a separate closely held
A legally adopted child of an individual
decedent's family during 5 of the 8 years
business, is considered qualified real
is treated as a child of that individual by
before the decedent's death; and
property if the business entity to which it
blood.
was rented was a closely held business
7. The property meets the following
(as defined by section 6166) for the
percentage requirements:
Material Participation
decedent on the date of the decedent's
a. At least 50% of the adjusted
death and for sufficient time to meet the
To elect special-use valuation, either the
value of the gross estate must consist of
“5 in 8 years” test explained above.
decedent or a member of his or her
the adjusted value of real or personal
family must have materially participated
Structures and other real property
property that was being used as a farm
in the operation of the farm or other
improvements. Qualified real property
or in a closely held business and that
business for at least 5 of the 8 years
includes residential buildings and other
was acquired from, or passed from, the
ending on the date of the decedent's
structures and real property
decedent to a qualified heir of the
death. The existence of material
improvements regularly occupied or
decedent, and
participation is a factual determination.
used by the owner or lessee of real
b. At least 25% of the adjusted
Passively collecting rents, salaries,
property (or by the employees of the
value of the gross estate must consist of
draws, dividends, or other income from
owner or lessee) to operate a farm or
the adjusted value of qualified farm or
the farm or other business is not
other closely held business. A farm
closely held business real property.
sufficient for material participation, nor is
residence which the decedent occupied
merely advancing capital and reviewing
For this purpose, adjusted value is
is considered to have been occupied for
a crop plan and financial reports each
the value of property determined without
the purpose of operating the farm even
season or business year.
regard to its special-use value. The
when a family member and not the
value is reduced for unpaid mortgages
decedent was the person materially
In determining whether the required
on the property or any indebtedness
participating in the operation of the farm.
participation has occurred, disregard
against the property, if the full value of
Qualified real property also includes
brief periods (that is, 30 days or less)
the decedent's interest in the property
roads, buildings, and other structures
during which there was no material
(not reduced by such mortgage or
and improvements functionally related
participation, as long as such periods
indebtedness) is included in the value of
to the qualified use.
were both preceded and followed by
the gross estate. The adjusted value of
Elements of value such as mineral
substantial periods (more than 120
the qualified real and personal property
rights that are not related to the farm or
days) during which there was
used in different businesses may be
business use are not eligible for
uninterrupted material participation.
combined to meet the 50% and 25%
special-use valuation.
requirements.
Retirement or disability. If, on the
Property acquired from the dece-
date of death, the time period for
dent. Property is considered to have
Qualified Real Property
material participation could not be met
been acquired from or to have passed
because the decedent was retired or
Qualified use. Qualified use means
from the decedent if one of the following
disabled, a substitute period may apply.
use of the property as a farm for farming
applies.
The decedent must have retired on
purposes or in a trade or business other
The property is considered to have
social security or been disabled for a
than farming. Trade or business applies
been acquired from or to have passed
continuous period ending with death. A
only to the active conduct of a business.
from the decedent under section
person is disabled for this purpose if he
It does not apply to passive investment
1014(b) (relating to basis of property
or she was mentally or physically unable
activities or the mere passive rental of
acquired from a decedent);
to materially participate in the operation
property to a person other than a
The property is acquired by any
of the farm or other business.
member of the decedent's family. Also,
person from the estate; or
The substitute time period for
no trade or business is present in the
The property is acquired by any
material participation for these
case of activities not engaged in for
person from a trust, to the extent the
decedents is a period totaling at least 5
profit.
property is includible in the gross estate.
years out of the 8-year period that
Ownership. To qualify as special-use
Qualified heir. A person is a qualified
ended on the earlier of:
property, the decedent or a member of
heir of property if he or she is a member
The date the decedent began
the decedent's family must have owned
of the decedent's family and acquired or
receiving social security benefits, or
and used the property in a qualified use
received the property from the
The date the decedent became
for 5 of the last 8 years before the
decedent. If a qualified heir disposes of
disabled.
decedent's death. Ownership may be
any interest in qualified real property to
Surviving spouse. A surviving spouse
direct or indirect through a corporation,
any member of his or her family, that
who received qualified real property
a partnership, or a trust.
person will then be treated as the
from the predeceased spouse is
qualified heir for that interest.
If the ownership is indirect, the
considered to have materially
business must qualify as a closely held
A member of the family includes only:
participated if he or she was engaged in
business under section 6166. The
An ancestor (parent, grandparent,
the active management of the farm or
indirect ownership, when combined with
etc.) of the individual;
other business. If the surviving spouse
periods of direct ownership, must meet
The spouse of the individual;
died within 8 years of the first spouse's
the requirements of section 6166 on the
The lineal descendant (child,
death, you may add the period of
date of the decedent's death and for a
stepchild, grandchild, etc.) of the
material participation of the
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