Allocation of assets, as between a credit shelter trust and a qualified terminable interest
property (QTIP) trust, is often based on formulas.
An exception to the rule that terminable interests
do not qualify for the marital deduction is qualified terminable interest
In general, naming the surviving spouse as beneficiary (with disclaimer as an option in favor of contingent beneficiaries such as a trust that has credit shelter and qualified terminable interest
property (QTIP) provisions) is an advantageous selection for several reasons.
However, if qualifying for the marital deduction or a reverse qualified terminable interest
property (QTIP) election would require a QTIP, qualified domestic trust (QDOT), or reverse QTIP election, those taxpayers will have to request relief under Regs.
2010(c)(5)(A), may influence the decision whether to make a qualified terminable interest
property (QTIP) election under Sec.
A qualified terminable interest
property (QTIP) trust can be handy for clients who have children from a previous marriage, providing a tax-favored vehicle "to make sure your money goes to your kids, not to a second spouse or their kids, if that's your wish," explains Barzideh.
Indeed, a qualified terminable interest
property (QTIP) trust may offer benefits to married couples.
As another option, a Qualified Terminable Interest
Property trust can enable a grantor to provide for a surviving spouse and maintain control of how the assets of the trust are distributed once the surviving spouse has also died.
The Ninth Circuit recently held that gift taxes incurred when a gift of a life interest in a qualified terminable interest
property (QTIP) trust was made are subject to this gross-up rule.
However, if the property in the trust is "qualified terminable interest
property" and the surviving spouse's interest is a "qualifying income interest for life" (see "IRC Section 2056, Marital Deduction," below), the charitable contributions deduction may be taken by the surviving spouse's estate upon her death, the decedent's estate having taken a marital deduction (assuming the executor's election) for the entire value of the property.
Will it involve a QTIP (Qualified Terminable Interest
Property) trust, an AB marital trust, or another alternative?
In some states, the qualified terminable interest
property trust, which is available under federal law, is also available under state law.