Student Question from Greg C
Course:  Estate Tax Planning

Student Question:

Dan, The assets in a QTIP trust are automatically included in the surviving spouse’s estate, correct? Thanks, Greg

Instructor Response:

Hi Greg!

Terminal interests are NOT normally included in the beneficiary’s estate. However, the IRS makes a special exception to “Qualify” (hence, QTIP for “Qualified” instead of TIP) this trust to be included in the surviving spouse’s estate so long as certain rules are followed in setting up the trust.

For a trust to qualify for the QTIP election, it must have the following elements:

  1. The document must provide that all income be distributed to the surviving spouse for life, even if the surviving spouse remarries.
  2. The document must allow the surviving spouse to compel the trustee to convert non-income-producing property to income-producing property. The spouse does not have to exercise this right. This prevents the surviving spouse from being denied an income stream due to a trust corpus (such as real estate) that produces no income. The spouse could compel the trustee to sell the real estate and invest in another asset that would provide income.

Follow these rules and the property IS included because it “qualifies” for inclusion; otherwise, it would not be included.

I hope that helps!