• PLR 201303003
  • March 11, 2013
  • Law Firm: Proskauer Rose LLP - New York Office
  • The IRS privately ruled that a marital trust that qualified as a QTIP trust under Internal Revenue Code Section 2056(b)(7) would still qualify as such following a proposed division into two separate trusts.

    The original trust provided that the spouse was entitled to receive all of the income of the trust annually, plus distributions of principal for her health and medical expenses. Upon the spouse's death the QTIP was to divide into separate shares for her three sons. After disagreement developed between the spouse and the sons over the trust's management, they proposed to divide the trust into two shares, one of which would continue for the benefit of the spouse as provided in the original trust. The other share would contain the same provisions following division, but the spouse agreed to thereafter renounce her interest in such trust, thereby causing it to be immediately distributable to the three sons.

    The IRS ruled that because the spouse would continue to be entitled to all the trusts' income following division, and no person other than the spouse would have the power to receive income or principal, nor appoint any part of the property of the trusts to any person other than the spouse, the trusts would still qualify as QTIP trusts under the Code. However, the spouse's renunciation of her interest in the second trust would be a taxable termination, resulting in a taxable gift of the spouse's income interest under Internal Revenue Code Section 2511, and a gift of the entire fair market value of the assets in the trust, as determined on the date of the disposition, less the value of the qualifying income interest in the trust under Internal Revenue Code Section 2519.