[WSBAPT] 2519 and termination of QTIP

[Katharine P. Bauer]

Query:
I have a large probate ($30 million) where the first spouse died and his
Will funds a QTIP for his surviving spouse.  We are contemplating using
portability to transfer his unused amount to his spouse. Surviving spouse
is incompetent and unlikely to live a long time.  Her POA has extremely
broad powers - of gifting, disclaiming and ability to transfer to other
trusts and family. Her AIF is in the process of gifting away her half of
the estate, utilizing her fed applicable exemption amounts (no Washington
gift tax) and paying any gift tax incurred.

First, We are curious as to when she may use her spouse's amount in
gifting.  Is it after the IRS accepts his 706?  She likely won't live that
long.

Second, we are curious about terminating the QTIP and either giving her the
life income interest or all of the trust.  The thought is to again gift it
to children if she takes it all.  Does 2019 cause any further damage by
pulling it into her "estate" and incurring gift tax?  She will have used
all of her fed exemption anyway and will definitely incur further incur
gift tax.  The purpose here would be to avoid the Washington state estate
tax on the extra $15 million  by disposing of it now.

Finally, and third, by paying gift tax now, does 2035 pull it back into her
estate if she dies prior to 3 years, which she will?  I am having trouble
interpreting the statute when we are contemplating terminating the QTIP and
gifting her the income interest or all of it....

We could simply disclaim QTIP assets under husband's estate but then it
would incur the Washington tax.

I have reviewed 2511, 2519 and 2035.  Since this is a 3:00 a.m. thought, I
would appreciate any and all comments as to whether this is a good idea.
After I have my coffee, I may regret my stupidity in sending this out!


-- 
Katharine P. Bauer
Bauer Pitman Lifetime Legal, PLLC
1235 Fourth Ave. East, Suite 200
Olympia, Washington 98501
tel. 360.754.1976
fax. 360.943.4427

 e-mail: kpb at bpblegal.com

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