Where a surviving spouse acquires a remainder interest in QTIP marital deduction property in connection with a transfer of property or cash to the holder of the remainder interest, the surviving spouse makes a gift to the remainder person under both IRC Section 2519 (disposition of QTIP interest) and IRC Sections 2511 and 2512 (transfers and valuation of gifts).
(9) The grantor makes an additional gift to the remainder person when the spouse's interest is revoked or the grantor survives the trust term without having revoked the interest.
In all of these types of trusts, the grantor is essentially making a current gift of the right to trust assets to the remainder person at a specified date in the future.
When there is a high probability that the client will outlive the trust term that is needed to obtain a low present value gift to the remainder person.
When the client has assets so substantial that a significant portion can be committed to a remainder person without compromising his own personal financial security.
The trust should specifically provide that the trustee has no discretion to withhold payments from the grantor (or possession of the trust property from the remainder person).
When it is desirable to avoid ancillary administration, the Split is useful since at the termination of the first party's interest, the remainder person automatically by contract becomes full and complete owner of the property.
The term holder will be treated as if he made a gift to the remainder person, equal to the fair market value of the property less the actual consideration paid by the remainder person for the remainder interest.
If the consideration paid by the term holder is exactly equal to the actuarial value of the annuity or unitrust payments, there would be no taxable gift of the remainder, because the value of the annuity or unitrust payments would be subtracted in arriving at the taxable gift, as would the consideration paid by the remainder person.
The owner retains the right to sell, lease, or otherwise transfer ownership interest in the real property without consent of the remainder interest persons, but if not so transferred, to pass to the remainder persons
upon the death of the owner.
The QTIP would then continue or distribute the proceeds for the benefit of or to the remainder persons of the QTIP.
Using the QTIP approach will be successful if there is a continuation of the business, in particular by children who are remainder persons under the QTIP trust.