fixing broken marital deduction and credit shelter trusts - ALI CLE

or Trustee). In all matters involving my estate, my will and this TrustAgreement, the same shall be construed in such a manner as to accomplishthis tax objective, and my personal representative and Trustee shallexercise no power in a manner that would be inconsistent with this taxobjective. To this end, all Trustee powers and discretions with respect tothe administration of the Marital Trust shall not be exercised orexercisable except in a manner consistent with this intent. All doubtfulquestions regarding the allocation or apportionment of Marital Trustreceipts and disbursements to or between principal and income shall beresolved in favor of the income beneficiary, it being intended that, at thevery least, my Spouse be given substantially that degree of beneficialenjoyment of the Marital Trust property during the remainder of mySpouse’s lifetime which the principles of the law of trusts accord to aperson who is unqualifiedly designated as the life beneficiary of a trust.Furthermore, if the Marital Trust consists of any property that is notproductive of a reasonable rate of income, my Spouse may require Trusteeto make the property productive or convert it within a reasonable time toincome-producing property or to provide out of other assets of the MaritalTrust the equivalent of the income such property would produce if it wereproductive of a reasonable rate of income.”4. A marital deduction savings clause is not a substitute for careful draftingnor is it truly a “savings clause.” 6 In Private Letter Ruling 9325002, theIRS disqualified a trust for QTIP treatment (despite a general savingsclause contained in the QTIP trust) because of an overridingadministrative provision authorizing a court of competent jurisdiction toamend the overall trust agreement if the purposes of the trust could “bedefeated or hindered because of change in circumstance or change in law….the court may amend the terms of this Agreement and restrict orremove any of the powers, duties, rights and privileges of the Trustee, thebeneficiaries or any other person.” The IRS ruled that the specificunrestricted administrative provision overrode the general maritaldeduction savings clause contained in the QTIP trust. The ruling indicatesthat had a marital deduction savings clause been contained in theadministrative powers section of the trust (so as to limit the court’sauthority), the QTIP marital deduction would have been available. Thisruling serves as a reminder that special trust powers that are designed toprovide post-mortem flexibility need to be expressly limited in their scope6 “The savings clause is not a savings clause in the strict sense of the term, but is an aid in determining the testator’sintent; that is, the existence of a savings clause that would ‘void’ a disqualifying power given to the trustees of themarital deduction trust is relevant here only because it helps indicate the testator’s intent not to give those trustees adisqualifying power.” Rev. Rul. 75-440. “Nonetheless, as discussed in Rev. Rul. 75-440, [savings clauses] can beused as an aid in determining testator’s intent where the instrument presents an ambiguity. I.R.S. Pvt. Ltr. Rul.199932001.- 4 -