The balance of the estate not passing to the family trust would be placed in a QTIP
trust, which would qualify for a marital deduction but be included in the survivor's gross estate.
In some cases, a QTIP
election was made when the taxable estate (before allowance of the marital deduction) was less than the applicable exclusion amount under Sec.
(22) In this situation, the trustee was authorized to invade a marital trust (for which only a partial QTIP
election was made) in order to pay to, or for the benefit of, the transferee spouse any amounts deemed "necessary or desirable, consistent with [transferee spouse's] accustomed standard of living, for her health, maintenance, or support." The Office of Associate Chief Counsel determined that this interest qualified for the TPT credit to the extent attributable to the portion of the marital trust for which the QTIP
election was not made.
Example 1: Dwight Emerson's will calls for the establishment of a QTIP
trust, to be funded with most of his assets.
IRC section 2519 provides that a gift of any part of the qualifying QTIP
income interest will be treated as a transfer of the entire QTIP
property [Treasury Regulations section 25.2519-1(g)].
The first-to-die spouse in this case left assets to the surviving spouse in a QTIP
trust to take advantage of the estate tax marital deduction.
Apparently, the ETIP rules do not apply if a reverse QTIP
election (see below) is made.
Provided there are sufficient assets to support the surviving spouse, it may be optimal for the trustee of the mari tal QTIP
trust to distribute the marital QTIP
assets to the surviving spouse.
While over-reliance on a QTIP
Trust to support the surviving spouse may squeeze the children's inheritance, an effective solution is to incorporate an ILIT into the blended family estate plan.
If state law recognizes the QTIP
, it may allow your client to take advantage of the larger federal exemption at the first death and delay the state taxes until the second death.
(3) Additionally, a marital deduction should be available if all income from the IRA is distributed at least annually to the surviving spouse, no one has the power to distribute any part of the IRA to anyone other than the surviving spouse, and the executor makes a qualified terminable interest property (QTIP
trust provides a way to defer estate taxes by taking advantage of the marital deduction, yet "control from the grave" by directing who will eventually receive the property upon the death of the surviving spouse.