Q-TIP trusts and loss of marital deduction.Q-TIP TRUSTS AND LOSS OF MARITAL DEDUCTION marital deduction n. when one spouse dies, the survivor may take a tax deduction of half of the value of the estate of the dying spouse. Thus, the minimum value of the estate before there is a possible federal estate tax rises from $600,000 to $1,200,000 at the death In a recent IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. letter ruling, no. 8843004, the decedent An individual who has died. The term literally means "one who is dying," but it is commonly used in the law to denote one who has died, particularly someone who has recently passed away. bequeathed his entire estate to an existing inter vivos trust inter vivos trust n. a trust created by a writing (declaration of trust) which commences at that time, while the creator (called a trustor or settlor) is alive, sometimes called a "living trust. . The trust provided that 50% of the net income was to be paid to the surviving spouse, with the remaining income payable to the surviving spouse at the trustees' discretion. One of the trust assets was the decedent's residence. The trust provided that the surviving spouse could reside there during her lifetime. If the trustees then sold the residence, the decedent's son could purchase it for a price less than the fair market value as of the decedent's date of death. The IRS held that in the event any qualified terminable interest Noun 1. terminable interest - an interest in property that terminates under specific conditions stake, interest - (law) a right or legal share of something; a financial involvement with something; "they have interests all over the world"; "a stake in the company's (Q-TIP) election was effective, it would be limited to 50% of the trust since the spouse had absolute right to only 50% of the net income. The IRS said in general the right to reside in a residence would qualify the trust for a Q-TIP election. However, the trust did not qualify for marital deduction, since the son's ability to acquire the property at less than fair market value was equivalent to the trustees' being able to appoint a portion of the trust assets to an individual other than the surviving spouse during that spouse's life. As a result, it was not a qualifying income interest and the marital deduction was lost. Observation: The sale of any asset that is part of a trust intended to qualify for the marital deduction should be at the fair market value as of the date of sale. There should be no other favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. sale terms. |
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