Accumulation provision no bar to QTIP deduction

Article Abstract:

A qualified terminable interest property (QTIP) deduction is permitted for estates despite the existence of an income accumulation provision for trustees in the trust agreement. This was the court ruling in the Estate of Ellingson case involving a marital deduction trust. The IRS asserted that the inclusion of an accumulation provision in the agreement barred the surviving spouse from claiming all income payable by the trust. The concerned parties use of 'may' instead of 'shall' in the agreement served as a major basis for the IRS' contention since the word 'may' denoted the weakness of any intention to qualify for a QTIP deduction such that the election is left to the trustee. However, the court ruled the accumulation provision permissible based on the estate's assertion of the need for the trustee to pay all trust income to the surviving spouse for the spouse to fulfill the provision for 'best interests.'

Taxation, Husband and wife, Husband-wife relations, Marital property

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Post-death contingency bars QTIP treatment

Article Abstract:

A case is reviewed in which the marital trust's lack of provisions giving the decedent's surviving spouse qualifying interest for life prevented an individual retirement account payable to the spouse from being treated as a qualified terminable interest property (QTIP). A QTIP interest is defined under Section 2056(b)(7) as property that is transferred from the decedent to the spouse who has qualifying income interest for life, resulting in a QTIP election. The spouse, who was designated as the trustee of the marital trust, could not take measures to resolve the problem because compliance with QTIP requirements need to be done as of, and not after, the decedent's death.

Case studies, Individual retirement accounts

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Conditional bequest to QTIP trust approved

Article Abstract:

The US Tax Court has issued a ruling on a case involving entitlement to a qualified terminable interest property (QTIP) deduction. The case 'Estate of Clayton, 70 AFT2d 92-6262, 92-2 USTC/xx, xxx (CA-5, 1992),' involved the claim for a QTIP deduction for a segment of a QTIP trust even though that segment was set to pass to a separate trust set up by the decedent for his children. The tax court ruled in favor of allowing the QTIP deduction and noted that the election was vaild since it met QTIP requirements.

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