Probate & Trust Law Section Conference Manual ... - Minnesota CLE

(1974); PLR 7902020 (ruling gift to spouse did not qualify for marital deduction
because it was a terminable interest that was not saved by a qualified exception where
language provided distribution shall be made “just as soon as international conditions
will permit”).
b. Five exceptions: The following are five exceptions to what would otherwise be
nondeductible terminable interests. In other words, these circumstances allow application of
the marital deduction:
1) Qualified terminable interest property: QTIP is property passing from the
decedent to the surviving spouse where the surviving spouse has a qualifying income
interest for life and for which the personal representative has made an election to treat
the property as qualifying for the marital deduction. I.R.C. § 2056(b)(7); Treas. Reg.
§ 20.2056(b)-7(b).
2) Survival for limited period: When the spouse’s interest is conditioned upon a
period of survival not exceeding six months after the decedent’s death and the spouse
survives for that period. I.R.C. § 2056(b)(3); Treas. Reg. § 20.2056(b)-3.
3) Life estate with power of appointment: When the spouse is given an income
interest for life coupled with a general power of appointment. I.R.C. § 2056(b)(5);
Treas. Reg. § 20.2056(b)-5.
4) Payments with power of appointment: When the spouse’s interest consists of
life insurance or annuity payments with a general power of appointment. I.R.C.
§ 2056(b)(6); Treas. Reg. § 20.2056(b)-6.
5) Charitable remainder trusts: When the spouse is the only non-charitable
beneficiary of a qualified charitable remainder trust under I.R.C. § 664. I.R.C.
§ 2056(b)(8); Treas. Reg. § 20.2056(b)-8.
5. Qualified Domestic Trust. I.R.C. § 2056A.
a. Rule: Generally, property passing to a surviving spouse who is not a U.S. citizen does
not qualify for the marital deduction. See I.R.C. §2056(d) (requiring surviving spouse to be a
U.S. citizen).
b. Exception: As an exception to this general rule, a qualified domestic trust (QDOT) is
a trust that qualifies for the marital deduction where the surviving spouse is not a citizen of the
United States. Treas. Reg. § 20.2056A-1(a).
c. Generally, three requirements must be satisfied to qualify as QDOT treatment.
1) Trustee: One trustee must be a U.S. citizen and must have the authority to
withhold taxes imposed by I.R.C. § 2056A from any amounts distributed from the
trust. Treas. Reg. §20.2056A-1.
2) Affirmative election: The executor must irrevocably elect to treat a trust as a
QDOT by the date determined as follows:
a) If a timely federal estate tax return is filed, the election must be made
on the last federal estate tax return filed before the due date (including
extensions of time to file actually granted) or,
3