Marital Trusts

Question 1

Portability Requirements

Answer 1

-• Decedent was married at the time of death
• Estate tax return is timely filed (9 months+ extensions)
• Executor elects portability

Question 2

Portability Effects

Answer 2

• Gets second basis step-up (1st at S1 death, 2nd at S2 death)
  • Simple
  • Certain special assets like retirement plans and IRAs, residences may be easier to deal with
  • Absolute control in Surviving spouse (when desired)
  • May pay less income tax (individual rates vs trust rate)
  • Smaller, non-taxable estates

Question 3

Power of Appointment Trust

Answer 3

• The spouse must have a general power of appointment exercisable during life or at death:
*Lifetime General Power, and/or
*Testamentary General Power
• All income pavable to spouse annually
• In addition, may have any other powers as desired by the grantor
• 5×5 power
• Ascertainable standard access to principal

Question 4

QTIP Trust Requirements

Answer 4

QTIP Requirements
• Qualifying Income Interest for Life:
* All income for life, payable at least annually
* No appointment (even by spouse) to persons other than spouse during spouse’s life. SS is the only permissible distribute for life.
* SS has the ability to require the trustee to convert any non-income
producing assets to income producing assets
• QTIP Election is made:
*Made by executor (estates) or donor (gifts)
*Made, in writing, on last estate tax return filed on or before due date (with authorized extensions), or on the gift tax return
* Election is irrevocable and may be(partial
*QTIP property is includible in the SS estate, per IRC 2044
*QTIP must pay the incremental share of estate tax in SS estate that results from inclusion of the QTIP trust

Question 5

QTIP Trust Features

Answer 5

• Distribution rights, maximum (optional, any or all):
*5×5 Power,
* Ascertainable Standard, access to any or all Principal,
*Limited power to appoint to a specified class
-Power to Split
-“Clayton” QTIP provisions to alter powers based election is made or not
• Distribution rights, minimum (required):
• All Income for Life

Question 6

QTIP Trust Benefits

Answer 6

• The current fair market value of all QTIP prope qualifying for marital deduction is included ins estate because the election was made, per IRC 2044
• Testator or Grantor Spouse pre-appoints the beneficiaries for aft SS’s death, yet may include a testamentary power of appointment

Question 7

QDT or QDOT Requirements

Answer 7

• Must meet marital deduction requirements for property pas to U.S. citizen spouse
1)Must have at least one U.S. trustee
2) US trustee must have the right to withhold estate tax from
any distribution

• QDT Election is made
• Made by executor (estates) or donor (gifts)
• Made, in writing, on last estate tax retum filed on or before due date (with authorized extensions), or on the gift tax return
• Election is irrevocable and may be partial

Question 8

QDT or QDOT Features

Answer 8

Qualified Domestic Trust (QDT or QDOT)
• The unlimited marital deduction is available only when surviving spouse is a U.S. citizen
• If the surviving spouse is a non-U.S. citizen, the decedent spouse can leave their Applicable Exclusion Amount outright to survivor without estate tax
• However, if assets are left to, or post-mortem placed in, a qualified domestic trust, taxation is deferred until distribution o the non-citizen spouse’s death

Question 9

Estate Taxation of QDTs

Answer 9

• Estate tax imposed on distributions of principal, unless
“hardship” applies
• Trustee is liable for tax
• Estate tax not imposed on income distribution
• When estate tax applies to distributions of QDT propert taxed:
• At U.S. spouse’s marginal estate tax rate
• Distributions are cumulative for tax rate
• Estate tax is also imposed at:
• Surviving spouse’s death, or
• If trust ceases to qualify as QDT