The Department of Treasury and the IRS have proposed amending federal estate tax regulations that apply to estates of decedents passing property to, or for the benefit of, a non-citizen spouse in a domestic trust for which the executor of the decedent's estate has made an election to be a qualified domestic trust (QDOT) and the trust satisfies all of the requirements for such treatment under applicable federal tax law and regulations. The proposed regulations, which were released on 20 August 2024, will appear in the Federal Register (REG-119683-22) on 21 August 2024.
Procedure for Filing Required Security Instruments
Under current Treasury Regulations No. §20.2056A-2(d)(1)(i), QDOTs with assets whose value exceeds USD 2 million must satisfy one of three alternative security arrangements to secure the payment of the IRC section 2056A estate tax. Treasury Regulations No. §20.2056A2(d)(1)(i)(B) and (C), respectively, describe the requirements and form of the bond and the letter of credit that may be used as the required security arrangement. These provisions also require that the bond or letter of credit be filed with the decedent's federal estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, or Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States).
Under the proposed regulations, a security instrument provided in compliance with Treasury Regulations No. §20.2056A-2(d) is not to be attached to the decedent's federal estate tax return (Form 706 or Form 706-NA). Instead, it is to be filed by submitting it directly to the Estate Tax Advisory Group. The proposal seeks to address the issue that security instruments attached to a decedent's federal estate tax return are not easily identified, hindering prompt forwarding to the Estate Tax Advisory Group.
Removing Outdated References
The proposed regulations seek to remove outdated references to §20.2056A-2T(d), which have already been finalized as §20.2056A-2(d).
In addition, the proposed regulations also seek to correct outdated references to a publication, to IRS officials and offices, and to procedures and addresses to be used by certain trustees to provide a security instrument to satisfy the requirements of a QDOT. The proposed regulations also seek to update the definition of "finally determined" in Treasury Regulations No. §20.2056A-2(d)(1)(iii) because the current definition of that term includes an outdated reference to the issuance of an estate tax closing letter.
The proposed regulations would also update Treasury Regulations §§20.2056A-4 and 20.2056A-11 to properly identify the titles of IRS officials authorized to enter into agreements with regard to the section 2056A estate tax and to grant extensions of time to file a Form 706-QDT, US Estate Tax Return for Qualified Domestic Trusts, or to pay any section 2056A estate tax.
Source: IBFD Tax Research Platform News