Modest estate in decoupled state - Which marital deduction choice?
Posted on Mon, Jan 19, 2009
Query: Client has $1.4MM estate in a decoupled state. Will the selection of "all going to marital share" using a QTIP trust allow the Trustee/PR to make QTIP election for state estate tax purposes?
Response: You don't want "all to marital" if you want to fund a marital and a non-marital. With Maryland's $1MM exemption and a $3.5MM federal exemption, an "all to marital" fails to use any state or federal exemption at all.
If your state allows a separate state QTIP election (that is, the state QTIP election doesn't have to be the same amount as the federal QTIP election), you can use something like the Clayton election that provides the most flexibility after the client/grantor dies. The executor/trustee makes a $400k state QTIP election (sending the remaining $1MM to the bypass trust for state estate tax purposes) and elects ALL of the estate out of QTIP treatment for federal purposes (sending all $1.4MM through the bypass for federal estate tax purposes). If your state does not allow a separate state QTIP election, then use the Clayton option, with the further option of creating two separate QTIP trusts: one funded with the amount necessary to reduce state estate tax to the lowest amount, and the other funded with the amount necessary to reduce the federal estate tax to the lowest possible amount.
Matthew T. McClintock, JD