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An "Unnecessary" QTIP Election May Not be Disregarded for Portability Purposes

By Eric D. Marchand on September 28, 2016

In recently issued Revenue Procedure 2016-49, the Service has confirmed that both a QTIP election and a portability election may be made on the same estate tax return, thereby maximizing exemption planning and flexibility in your estate plan. This new guidance was issued to clarify a gray area posed by Revenue Procedure 2001-38 whereby a QTIP election could possibly be void where the executor also makes a portability election. 

In Revenue Procedure 2001-38, the IRS announced that in circumstances where a QTIP election was made but was unnecessary to eliminate the estate tax liability, the Service would disregard the QTIP election and treat the election as null and void. Often an executor would list trust property on Schedule M of an estate tax return making an inadvertent QTIP election in situations where the estate would not have otherwise been taxable. Revenue Procedure 2001-38, when issued, was taxpayer friendly and designed to provide relief to the surviving spouse of a decedent whose estate received no benefit from the unnecessary QTIP election.

With the advent of the portability election (i.e., the ability for a surviving spouse to utilize the deceased spouse’s unused exclusion amount (DSUE)), some practitioners were concerned the Service would apply Revenue Procedure 2001-38 in situations where an executor of a decedent’s estate intentionally makes a QTIP election to maximize tax benefits such as maximizing the DSUE or ensuring a second basis adjustment at the death of the surviving spouse. Revenue Procedure 2016-49 modifies and supersedes

Revenue Procedure 2001-38 by confirming the procedures by which the Service will continue to disregard a QTIP election, but excluding from its scope “unnecessary” QTIP elections made by estates that also elected portability. Revenue Procedure 2016-49 is an important development because it provides clarity with respect to utilizing portability and a QTIP trust to provide benefits to the surviving spouse without the fear that the QTIP election may be disregarded by the Service.

Please contact Eric Marchand at 214-744-3700 or via email at emarchand@meadowscollier.com with any questions on how to apply this new taxpayer friendly guidance to your current estate plan.