Opinion ID: 592206
Heading Depth: 3
Heading Rank: 2

Heading: Important QTIP Features

Text: 38 A. Election. Gifts or bequests of terminable interests that appear to be eligible for the Marital Deduction are nonetheless not automatically deductible. An irrevocable, affirmative election must be made on the estate tax return by the executor before an apparently deductible terminable interest meets the definition of QTIP. 39 It is axiomatic that any estate tax election which is not made inter vivos by the testator can only be made (a) by someone else (b) after the death of the decedent. And we are aware of no post-mortem estate tax election that is required to be made earlier than the time for filing the Form 706. In keeping with the congressional purposes of 1) eliminating the need for testators to risk predicting the future, and 2) providing both flexibility and the opportunity for post-mortem estate planning either to minimize or optimize the estate tax impact on the combined marital property of the spouses, the QTIP election can be made at any time before such filing date. Still, like other estate tax elections (and other exceptions to the terminable interest rules), the effect of the QTIP election is retroactive to the instant of death, irrespective of when it is actually made. Significantly, the party statutorily vested with the exclusive right to make the post-mortem QTIP election is not the surviving spouse, as one might expect, but the executor. Congress obviously did this as an extension of the testator's volition but with all of the guesswork removed. 40 Congress also recognized the need for post-mortem flexibility when it vested the executor with the additional option of making a partial QTIP election. The election need not be all or nothing; rather, the executor may choose QTIP treatment for any percentage or share of the property interest, from zero to 100%. 41 B. Property. A limitation which was clear prior to ERTA was that, [i]n applying the terminable interest rules, it [was] essential to honor the statutory distinction between an 'interest' in property and the underlying property itself. 33 In ERTA, Congress recognized that if this distinction were made applicable to QTIP, it could prove unduly restrictive of the kinds of property interest (other than perfect ownership or fee simple title) that would be eligible for the deduction. Such a potential restriction was eliminated by the inclusion of a new definition of property. The term 'property' includes an interest in property. 34 This feature dovetails with the partial QTIP election. 42 C. Separate Shares. The QTIP portion of Code § 2056 which follows on the heels of the definition of property mandates that [a] specific portion of property shall be treated as separate property. 35 Like the partial election and the definition of property to include an interest in property, the separate share concept enhances post-mortem flexibility and planning. [T]he Treasury construes the 'specific portion' rule to permit the executor to elect Q-TIP treatment for a fraction or percentage of an otherwise qualifying trust. 36 Of interest in the instant case is the position announced by the Treasury, in proposed regulations, that would permit separate trusts to be created by a partial election: 43 [T]he trust may be divided into separate trusts to reflect a partial election that has been made or is to be made. 37 44 [A]s ... the statute provides that 'a specific portion of property shall be treated as separate property,' the executor can elect only for a portion of corpus. This greatly extends the usefulness of this provision. 38 In case of a qualified terminable interest property trust, 'property' includes an interest in property, and a 'specific portion' of property is treated as separate property. Thus it is possible to obtain the Marital Deduction for a specific portion of the corpus of the trust for which the spouse is entitled to the income interest. 39 45 D. Property Passing to the Surviving Spouse. Entitlement to the Marital Deduction for any property, including QTIP, requires that the property pass to a person who as a matter of law is the surviving spouse of the testator. That requirement is not an issue in the instant case. 46 E. Property Passing from the Decedent. Another requirement of the Marital Deduction is that property for which the deduction is claimed in fact be an interest in property which passes or has passed from the decedent. 40 That the decimal interest in the securities passes from the decedent within the meaning of Code § 2056 is not in dispute here. 47 F. Property Included in Determining the Value of the Gross Estate. Also uncontested in the instant case is that the value of the undivided interest in the securities was included in determining the value of the testator's gross estate, as is required for any legacy to be eligible for the Marital Deduction.