The Marital Exemption

Since the allowance of the unlimited marital deduction was established by the Economic Recovery Tax Act of 1981, a married person normally is able to postpone the imposition of estate tax until the death of the surviving spouse, by transferring all of his or her gross estate to or for the benefit of the survivor under the protection of the estate tax marital deduction. Additionally, the allowance of a marital deduction, by election, for qualified terminable interest property ("QTIP") has increased the likelihood that a married person will decide to leave her or his entire estate in a form that qualifies for the marital deduction, because the spouse dying first can control the ultimate disposition of h

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that no part of a bequest in trust will qualify for the marital deduction if the executor has discretion to elect any amount to qualify for QTIP treatment, with the balance going to a non-QTIP trust. The executor's discretion results in no amount of property guaranteed to pass to the spouse. "The IRS has defended its interpretation of Sec. 2056(b)(7) often, and the Tax Court has consistently sided with the Service in not allowing QTIP treatment for an amount limited only by the executor's discretion. The appellate courts have not seen the issue in the same light. In Est. of Clayton, 976 F2d 1486 (5th Cir. 1992), rev'g 97 TC 327 (1991), the surviving spouse was the executor charged with making the QTIP election. Any amount not elected as QTIP would pass to another trust that did not qualify. The IRS and Tax Court held that the discretionary election was tantamount to giving the executor a power to appoint property to someone other than the spouse. Thus, there was no qualifying income interest. The Fifth Circuit, in a strong opinion, rejected this argument as violating the clear purpose of Congress in enacting the QTIP provisions, and allowed the deduction for the amount elected by the executor." The Eighth Circuit Court
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Approximate Word count = 2868
Approximate Pages = 11 (250 words per page)

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