But is the following language an implicit direction against statutory apportionment? QTIP = $2,000,000.00 So, upon the first death, Bypass trust utilizes decedent spouses estate tax exemption, and the QTIP qualifies for the estate tax marital deduction resulting in no estate taxes at death. Create in your will a qualified terminable interest property (QTIP) trust naming a knowledgeable trustee to control the trust after you die, someone whom you trust and who will understand Rebecca’s financial needs at that time. Section 733.817 apportions taxes on a taxbytax basis. Reverse QTIP Election Cannot Be Partial The Trustee can split the QTIP trust. T's executor may elect to treat the trust as two separate trusts, one having a value of 25% of the value of the single trust and an inclusion ratio of zero, but only if the election is made prior to June 24, 1996. It could have chosen a bright line test which would have required a specific reference to the statute to direct against statutory apportionment or, less stringently, it could have required an explicit direction against apportionment. F.S. Assume after Rebecca dies the QTIP trust designates your two children equal beneficiaries of one-half of the trust corpus and your two grandchildren as equal beneficiaries of the remaining half. A reverse QTIP election allows a decedent who has created a QTIP trust for his surviving spouse to be treated as the transferor of the trust property for purposes of the GST tax. Unfortunately, the statute still contains several ambiguities which need to be clarified and several inequities which need to be remedied. A trust includes any arrangement (other than an estate) that has substantially the same effect as a trust. §733.817 spreads the unified credit of IRC §2010 and the state death tax credit of IRC §2011 among all the parties included in the federal gross estate. T transfers $100,000 to a trust for the sole benefit of T's grandchild.

Your executor makes the QTIP election on your federal estate tax return, Form 706, as described in (e) above. Because of the reverse QTIP election, for GST purposes, the trust property is not treated as includible in S's gross estate and, under those circumstances, no right of recovery exists. Why do we hold Businesses and Governments to Different Standards? T transfers cash to an account in the name of T's child, C, as custodian for C's child, GC (who is a minor), under a state statute substantially similar to the Uniform Gifts to Minors Act.

If the language were a direction against statutory apportionment, the estate taxes would be paid “off the top” with each devisee receiving the same amount but the taxes would be larger. If so, why is the residuary share of the trust not available for apportionment of some of the tax attributable to the homestead property?

Her accountant told her that TCJA signed into law on December 22, 2017, doubled the unified estate/gift lifetime exemption to $10 million, which in 2018 stood at $11,180,00 after being indexed for inflation. (5) Examples. Bequeath the stocks and bonds and the two condos to this trust. If you create a QTIP trust, then at your death no estate tax is due on the assets that go into the trust. One of the options that should be given serious consideration is whether to have a tax clause at all. The statutory change is welcomed. Until its recent revision, the statute remained basically unaltered since 1963. Assuming they do not override §733.817, then the tax shifts from a marginal rate to an average rate for QTIP trusts.

Bob would like to bequeath the $3 million to his sister but would like his spouse to be able to use his unused lifetime estate/gift tax exclusion amount under the portability provisions. If a trust is The payment of the estate taxes to New York reduces the amount of estate taxes payable to the State of Florida. Please consult IRS Circular 230 Notice, regulations governing practice before the IRS with respect to not using a blog as written tax advice to support a taxpayer’s dispute with the IRS. The statute does not exempt the New York property from being charged a portion of the Florida estate tax nor does it credit the New York property with the New York tax paidan unequitable result which has not been remedied by the statute. During Rebecca’s life no person can have the power to appoint any part of the trust property to any person other than to her. the QTIP trust assets are still includible in Rebecca’s gross estate when she dies). The statute is silent as to when a document (other than a revocable trust, if the revocable trust does not contain a contrary direction) can impose upon itself an obligation to bear a greater share of the estate taxes. from the University of North Carolina at Chapel Hill and his LL.M. Solely for purposes of chapter 13, the beneficiaries of the residuary estate are not treated as having made an addition to the trust by reason of their failure to exercise their right of recovery.

T transfers $100,000 to a trust providing that all of the net income is to be paid to T's child, C, for C's lifetime. Finally, I suggest you familiarize yourself with the portability provisions discussed in case #3, above, in this blog (Bob and Belle). The will drafters and judges should consider the derivation of the statutory language and follow the Ferrone decision. Can a will direct that all estate taxes, even on jointly held properties, be paid from the revocable trust, or can thewill only direct that the estate taxes imposed on the probate estate be paid from the trust?

The reverse QTIP election is effective with respect to the entire trust even though T's executor could allocate only $1 million of GST exemption to the trust. The legislature made some “tough choices” in deciding what was necessary to override statutory apportionment. 2d 146 (Fla. 3d DCA 1990), affirmed the decision by the trial court and determined that very similar language as found in Collin did not direct against statutory apportionment. They have two children, Jake, 28 years old, and John, 26 years old, each of whom have promising careers in the law firm in which Robert is a partner. If severed on a fractional basis the new trusts need not be funded with a pro rata portion of each asset in the QTIP trust. Transferor defined; other definitions. The reverse QTIP election can only apply to a separate QTIP trust, so if the amount qualifying for the marital deduction exceeds the GST exemption, then 2 QTIP trusts must be created, one for the GST exemption, and the other for the remaining marital deduction.

In the case of a transfer with respect to which the donor's spouse makes an election under section 2513 to treat the gift as made one-half by the spouse, the electing spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor, regardless of the interest the electing spouse is actually deemed to have transferred under section 2513. See § 26.2632-1(c)(5) Example 3, regarding allocation of GST exemption with respect to split-gift transfers subject to an ETIP. (e) Interest in trust. They would be well advised to have no tax clause and let the statute apply. Effect of reverse QTIP election on constructive additions. If the tax apportionment language in the will is ambiguous, the court in Ferrone notes parol evidence can be considered in order to shed light on the issue. Jake and John each have one child. Mr. Kiziah received his J.D. 2010(C)(5)(A).

A transfer is subject to Federal estate tax if the value of the property is includible in the decedent's gross estate as determined under section 2031 or section 2103. The transfer by T is subject to Federal gift tax because a gift tax is imposed under section 2501(a) (without regard to exemptions, exclusions, deductions, and credits) and, thus, T is treated as having transferred the entire $10,000 to the trust. What the accountant failed to tell her is that by its terms the new law sunsets on 12/31/2025 (i.e., on 1/1/2016 the exemption reverts to $5 million indexed for inflation). If this language is an implicit direction against statutory apportionment, then directing against apportionment is easy, and may be too easy. (1) In general. Example 5. The revised apportionment statute attempts to resolve the conflict between the Third and Fourth circuits. C has a right to withdraw $10,000 from the trust for a 60-day period following the transfer. For example, assume the residue of the probate estate is composed of only one asset having a value of $1,000,000, administration expenses charged to the residual probate estate amount to $100,000 and the decedeut’s revocable trust has a value of $1,000,000. As suggested by Peirsol and Fowler in their article entitled “Tax Apportionment:’ (Basic Estate Planning in Florida, 1980 ed., as supplemented, §14.8) the numerator must be reduced by the deductible expenses paid by the residual probate estate. (2) Transfers subject to Federal estate or gift tax. For purposes of this paragraph, a surviving spouse is the transferor of a qualified domestic trust created by the deceased spouse that is included in the surviving spouse's gross estate, provided the trust is not subject to the election described in § 26.2652-2 (reverse QTIP election). This single ability to impose tax on another entity is an unfortunate limitation. The bequest to GC is a direct skip. Under the terms of the trust, all trust income is payable to T's surviving spouse, S, during S's lifetime. Tax clauses are not for amateurs or general practitioners. In most A/B trust arrangements, the marital, or A portion of the trust, is fully accessible by the surviving spouse. A possible alternative is for the first spouse’s residuary QTIP trust to direct specifically that all transfer taxes caused by the inclusion of both the reverse and second QTIP trusts in the surviving spouse’s estate be paid from the second QTIP trust. The following examples illustrate the principles of this paragraph (a): (1) In general. By Donald L. Sharpe, Emeritus Professor of Tax Law and Estate Planning, Fordham Law School. T's executor may elect to treat the trust as two separate trusts, one having a value of 25% of the value of the single trust and an inclusion ratio of zero, but only if the election is made prior to June 24, 1996. He is a partner in Pressly & Pressly, P.A., located in West Palm Beach. At the time of S's death, S was the beneficiary of a trust with respect to which T's executor made a QTIP election under section 2056(b)(7). Give your executor the power to sell probate assets to pay administration expenses, debts, and taxes. The Guidry decision was followed in Yoakley v. Raese, 448 So. Now a decedent can direct in a will that all estate taxes be paid by the revocable trust, a change that is especially helpful when the residue pours into the revocable trust.