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Subparagraph 1 of the dispositive section in the trust in question for the 1st death provides that the "Survivor's Trust shall consist of the following:"
a. The surviving spouse's interest in the community estate and his interest in his separate trust estate.
b. The minimum dollar amount necessary to eliminate any estate or GST tax at the first death, "taking into account (1) any available deductions and credits; and (2) the net value of all other property included in the deceased Trustor's gross estate which passes or has passed to or for the surviving Trustor, under this instrument or otherwise, and which qualifies for the estate tax marital deduction."
c. "The assets qualifying for the federal estate tax marital deductions only to the extent that the transfer of such assets to the Survivor's Trust would effect a reduction in the federal estate tax otherwise payable by the deceased Trustor's estate."
Under subparagraph 2 the "Trustee shall then establish an Exemption Trust" which consists of the max amount that can pass free of estate tax after considering all deductions, credits, and other property that does not qualify for the marital deduction.
Under subparagraph 3 the "Marital Trust shall consist of the balance of the Trust Estate representing the balance of the deceased Trustor's interest in the Trustors' Community Estate, and the balance of the deceased Trustor's separate property included in the Trust Estate, but after allocation of such property to the Survivor's Trust and the Exemption Trust."
Under the subparagraph 4 et seq the Trustee is authorized but not required to make the QTIP election for the Marital Trust.
I'm not used to seeing marital deduction language in the typical survivor's trust when there is going to be a marital trust. My questions are:
1. Is there anything left for the Marital Trust after funding the Survivor's and Exemption Trust?
2. Because of a problem with the income provisions of the Marital Trust, I am contemplating not making the QTIP election for any property otherwise passing to the Marital Trust. Would my nonelection cause the marital deduction amount to be added to the Survivor's Trust under subparagraph 1b. and or 1c.?
This trust was drawn up in 1990 by a Los Angeles area attorney who apparently had a few thousand estate planning clients. He was bought out by another firm in 1991 and is no longer active (or in the state), so I've been unable to consult with him. If any members have dealt with provisions such as these, I would appreciate your thoughts.
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Power Member
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Last Login: 3/12/2011 12:58:57 PM
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| That is the most confusing provision that I've ever seen. It looks like the Survivor's Trust gets 1/2 the CP plus all of what's left that exceeds the exemption amount. In addition, there's marital trust language. I worked on a estate where the trust provided for a QTIP election but no marital deduction (the couple also had second-to-die life insurance). The family went to the probate court to reform the trust to provide for a martial deduction. The court agreed even though the surviving spouse was not competent to testify about the intent of the agreement. I'd be nervous about this one.
Mary Kay Foss
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Power Member
Group: Forum Members
Last Login: 1/6/2010 6:00:00 PM
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| Hmmm, it looks like the drafter used two pecuniary formula amounts. I haven't seen this done before. I don't understand why it is better. I guess property could pass to the marital trust if the SS disclaims some of the first formula amount. Watch out for sale\exchange treatment when funding both trusts since both will be in satisfaction of a dollar amount.
John Jacobson
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Thanks for your comments. I just wish I could have seen this trust before our client died.
The real problem is that the Marital Trust may well not qualify for the marital deduction. The surviving Trustor has the right exercisable annually to require distribution of Marital Trust income to himself, but the Trustee is directed to distribute Marital Trust income as the Trustee shall deem necessary for the surviving Trustor's proper support, care, and maintenance. The Trust subsequently provides for an invasion of principal if the income is insufficient, then states: "Any income not so disbursed by the Trustee shall be returned to and made part of the principal of the Marital Trust". This raises the possibility that income could be accumulated if the Trustor were incapacitated and is close enough to the facts in the Estate of Ralph Davis (CA-9, No 03-72240, 1/24/05, in which the QTIP deduction was denied) that I don't even want to use the Marital Trust.
That was why I'm wanting to decline the QTIP election for the Marital Trust and claim the marital deduction using the provisions of the Survivor's Trust under 2056(b)(5). Thanks again.
Dan T. Stanfield
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