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Divided Tax Court now allows estate tax marital deduction for QTIP property contingent on executor's QTIP election for estates of decedents dying before Mar. 2, 1994.

In Est. of Clack, 106 TC No. 6 (1996), the decedent's will gave his surviving spouse an income interest in certain marital trust property, but provided that if the decedent's co-executors did not elect to treat the property as qualified terminable interest property (QTIP) within the meaning of Sec. 2056(b) (7), such property would instead be administered under the terms of a nonmarital family trust. According to the Tax Court, the marital trust property is QTIP within the meaning of Sec. 2056(b) (7). The court will no longer follow its opinions in Est. of Robertson, 98 TC 678 (1992), rev'd, 15 F3d 779 (8th Cir. 1994); Est. of Clayton, 97 TC 327 (1991), rev'd, 976 F2d 1486 (5th Cir. 1992); and Est. of Spencer, TC Memo 1992-579, rev'd, 43 F3d 226 (6th Cir. 1995).

Caution

Regs. Sec. 20.2056(b)-7(d) (3) reads as follows:

Contingent income interests. An income interest granted for a term of years, or a life estate subject to termination upon the occurrence of a specified event (e.g., remarriage), is not a qualifying income interest for life. In addition, an income interest (or life estate) that is contingent upon the executor's election under section 2056(b) (7) (B) (v) is not a qualifying income interest for life, regardless of whether the election is actually made. (Emphasis added.)

This regulation is effective for estates of decedents dying after Mar. 1, 1994.

Consequently, the Tax Court's decision concluded as follows:

One caveat to our holding is in order. Section 20.2056 (b)-7(d) (3), Estate Tax Regs., provides that the marital deduction is not available under the circumstances of the instant case. Because the regulation is effective for estates of decedents dying after March 1, 1994 (see section 20.2056(b)-10...), it is not applicable to the instant case. Consequently, we leave for another day the issue of the validity of that regulation. Obviously, if the regulation were held to be valid, there might be a different result for estates of decedents dying after March 1, 1994. (Footnote omitted.)
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Article Details
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Title Annotation:qualified terminable interest property
Author:Janicki, Michael
Publication:The Tax Adviser
Article Type:Brief Article
Date:May 1, 1996
Words:347
Previous Article:Annual exclusion gifts require special care when using Crummey powers.
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