Return to Estate Planning Advanced                

Qualifying For The QFOBI Deduction
A Check List Of Requirements

In the right situation, the qualified family-owned business interest (QFOBI) deduction can be a useful estate planning and business continuation tool. The requirements to qualify, however, are complex. This checklist of major requirements can help you decide if further investigation into this estate cost reduction strategy would be useful.

To Qualify For The Deduction

In order for the estate to qualify for the deduction, you must first be able to answer 6~yes" to each of the following requirements:
•    Ownership and material participation: The decedent or family members must have owned and materially participated in the business for at least 5 of the 8 years before death. Yes/ No
•    Location of business: The principal place of business must be in the United States. Yes / No
•    Percentage of estate assets: The QFOBI asset must be more than 50% of the decedent's adjusted gross estate at the time of death. Yes / No
•    Citizenship/residency: At the time of death, the decedent must be a citizen or resident of the United States. Yes / No
•    The QFOBI deduction option is not automatic: The executor must elect to have the exclusion apply to the estate. Yes / No
•    Recapture agreement: Each qualified heir must agree in writing to repay the benefits received through the QFOBI deduction, if certain after-death requirement are not met. Yes / No
•    Ownership percentage: At the time of death, the decedent must have held all
    interest equal to at least one of the following:
    * 50% owned by the decedent and family; or Yes / No
    * 70% owned by the decedent and family and one other family (decedent and
        family owning at least 30%); or Yes / No
    * 90% owned by decedent and family and two other families (decedent and family
        owning at least 30%). Yes / No

After Making The Election

There are severe consequences, including repayment of the avoided estate taxes (with penalties and interest), if the heirs do not meet certain requirements during the 10year period following the decedent's death:

•    Material participation: At least one qualified heir or family member must materially participate in the trade or business for at least 5 years of any 8-year period. Yes / No
•    Other recapture events: A qualified heir disposes of the business interest; a qualified heir loses U.S. citizenship; the principal place of business ceases to be the United States. Yes / No