Qualified domestic trust (QDOT)
A qualified domestic trust (QDOT) can allow an estate tax marital deduction for property bequeathed to a noncitizen surviving spouse when statutory and regulatory requirements are met. A QDOT has trustee and distribution controls. This glossary entry explains its mechanics for owners of businesses, real estate and private investments, and their families.
How it works
The executor makes the election on Form 706, and the election is generally irrevocable.
Federal estate tax may apply to later principal distributions or at the surviving spouse's death.
Where it shows up for owners of businesses, real estate and private investments
A QDOT may be used for property from an estate bequeathed to a noncitizen surviving spouse. The property may include a business interest, real estate or a private investment when bequeathed through the trust and the requirements are met.
The trust's administration includes a U.S. trustee and controls over principal distributions. The executor's election is made on Form 706 by the applicable deadline, including extensions.
Points that are easy to confuse
A QDOT can defer estate tax, but the deferral does not permanently eliminate the tax.
The marital deduction and the QDOT election are separate parts of the arrangement. The deduction depends on statutory and regulatory requirements, while the executor makes the election on Form 706 and it is generally irrevocable.
Common questions
Who can be the trustee of a QDOT?
A QDOT generally requires a U.S. citizen or domestic corporation as trustee. Estate tax controls apply to trust principal distributions.
Does a QDOT permanently eliminate estate tax?
A QDOT can defer federal estate tax in qualifying circumstances. Federal estate tax may apply to later principal distributions or at the surviving spouse's death, so deferral is not permanent elimination.