Tax Facts Q: 534. What is a reverse QTIP election and how is it made for GST tax purposes? PLR 201246020
In this private letter ruling, the IRS allowed an extension of time for the executor of an estate to correct the decedent's failure to properly plan for generation skipping transfer ("GST") taxes when he created a QTIP trust to pass assets to his beneficiaries.
The first-to-die spouse in this case left assets to the surviving spouse in a QTIP trust to take advantage of the estate tax marital deduction. The trust provided that if the property in the QTIP trust exceeded the deceased spouse's remaining GST exemption, two separate trusts should be created from the trust property--a GST exempt QTIP trust and a GST nonexempt QTIP trust. The executor was to distribute property with a value equal to the deceased spouse's remaining GST exemption to the GST exempt QTIP trust. A reverse QTIP election could then allocate the deceased spouse's remaining GST exemption to the GST exempt trust.
The surviving spouse failed to take these actions, and such failure was not discovered until after his death. Because the IRS found that the decedent acted reasonably and on the advice of his accountants, the extension of time was allowed so that the executor could sever the original QTIP trust into two trusts and make the reverse QTIP election in order to avoid GST taxes when the property in the GST exempt trust passed to the decedent's beneficiaries.