Opinion ID: 592206
Heading Depth: 2
Heading Rank: 4

Heading: Backdrop for QTIP

Text: 29 During the five years following 1976 no statutory changes of particular significance to the Marital Deduction occurred. The stage was set, however, for the most dramatic and expansive liberalization of the Marital Deduction in history. Not surprisingly, the overarching consideration of the sweeping Marital Deduction changes of 1981 was the resurgence of the decades-old concept of marital property as the unitary estate of both spouses, and 1948's new concept for estate-splitting as a corollary to income-splitting between husband and wife. 23 30 Leading to the 1981 enactment of ERTA was the burgeoning realization that an ever-increasing number of testators were encountering a serious dilemma: They could not provide maximum lifetime benefits to their surviving spouses and, at the same time, control who would be the ultimate recipients of the property after the death of the surviving spouse. Congress recognized that the ranks of such testators included a growing number of those who expect to be survived by children of a first marriage and by a spouse of a subsequent marriage. Under pre-1982 Marital Deduction rules, particularly the one prohibiting the deduction of terminable interests, such a testator faced a classic Catch-22 decision: He or she could either 1) provide maximum financial benefits and security for the surviving spouse but only at the risk that the survivor might waste the property or appoint it to successors other than the children of the testator's first marriage; or 2) ensure that the property would devolve to his or her children of a prior marriage (or other objects of his or her bounty) but at the cost of losing the Marital Deduction and risking underendowment of the surviving spouse. Even the pre-1982 vehicle of the power-of-appointment marital trust would not allow such a testator to ensure ultimate inheritance by children of his or her first marriage. 24 31 The strong sense of Congress was that if the concept of the marital property regime as a single unit, preservable intact until the death of the second spouse, was to realize its full potential, something truly new and innovative would be required. None can quarrel with that description of the fundamental change in the Marital Deduction wrought by ERTA: the unlimited Marital Deduction. Congress flew into the wild blue yonder in 1981 by exempting all transfers between husband and wife ... subject [only] to rules ... to insure that the exempted property will be taxed if and when the surviving spouse disposes of it by gratuitous transfer, whether inter vivos or at death. 25 32 Thus, to retain the article of faith that property which is untaxed in the estate of the first spouse to die must be taxable in the estate of the surviving spouse, Code § 2056's general denial of marital deduction treatment for terminable interests was preserved as an exception to the new general rule of unlimited deductibility of interspousal transfers. Even so, Congress realized that, without something else, the aforesaid dilemma would persist for many testators. The well-verbalized realization by Congress 26 that married testators--particularly those with children of a former marriage--would be left with a Hobson's Choice as long as terminable interest property was ineligible for the Marital Deduction, prompted genuine creativity. Out of thin air and from whole cloth, Congress invented a brand new, theretofore unseen concept: Qualified Terminable Interest Property. If unlimiting the Marital Deduction was a flight into the wild blue yonder, Congress truly slipped the surly bonds of earth 27 with the advent of QTIP.