Which of the following is NOT a characteristic of a qualified domestic trust (QDT)?

• A. At least one trustee must be a U.S. citizen or domestic corporation.
• B. The executor of the donor's estate must irrevocably elect to have the trust treated at a QDT.
• C. The U.S. trustee must have the right to withhold federal estate taxes from any distribution.
• D. Upon termination of the trust, the U.S. trustee must file a final accounting with the IRS and a tax of 55% the current fair market value of the trust assets shall be assessed.

Answer: (D)

Qualified domestic trusts are used to let a noncitizen spouse benefit from the deceased spouse’s estate while keeping U.S. tax controls in place. For a trust to qualify as a QDT, there must be a U.S. trustee who is a U.S. citizen or a domestic corporation; the executor must irrevocably elect to treat the trust as a QDT on the estate tax return; and the U.S. trustee must have the right to withhold federal estate taxes from distributions to the surviving spouse to ensure the tax obligations are met. The notion that, upon termination, the trustee must file a final accounting with the IRS and that a 55% tax on the trust’s current fair market value would be assessed is not how QDTs work. There isn’t a separate termination tax like that, and final accounting is not filed with the IRS as a termination requirement; tax reporting occurs through the standard fiduciary and estate tax returns.