[WSBAPT] 2519 and termination of QTIP

[Katharine P. Bauer]

Sam, This is just the start of the process.  Still months to go before we
have to file.   I have also consulted and am consulting with others.  I
thought I would see what else surfaced in the comments here. Thanks for
comments.
On Nov 21, 2014 2:31 PM, "Sam Furgason" <sam at furgasons.com> wrote:

> If I were in your shoes, I’d consider bringing in consulting counsel,
> either a tax attorney or respected estate planning attorney, from one of
> the larger firms. The cost is justified, and two minds could generate
> different solutions. I think there is more than one way to approach the
> goal.
>
> I’m still not clear on what you mean by “terminating” the QTIP. Has an
> election already been made? If so, it may be too late to change that
> because an election, once made, cannot be revoked (if I remember
> correctly). However, if you are still within  the period for filing a
> return you might be able to file a “revised” return to reduce or eliminate
> the election. Again, something to discuss with one of the people who
> regularly handle large estates.
>
> S
>
>
>
> *From:* wsbapt-bounces at lists.wsbarppt.com [mailto:
> wsbapt-bounces at lists.wsbarppt.com] *On Behalf Of *Katharine P. Bauer
> *Sent:* Friday, November 21, 2014 11:42 AM
> *To:* WSBA Probate & Trust Listserv
> *Subject:* Re: [WSBAPT] 2519 and termination of QTIP
>
>
>
> Thanks, Sam.  That is about what I was thinking.  Joint estate of $30m
> sorry I wasn't clear.  We were wondering about terminating the QTIP and
> passing the income interest to her and balance to kids, not through
> disclaimer (would incur fed and state estate taxes) but by TEDRA.
> Interesting situation where the family wants to avoid Washington State tax
> to the greatest extent, since there is no gift tax here (yet). She is
> definitely disposing of her half of the estate (yes $15 million).  If
> *she* has both their exemptions and uses them individually, he is not
> incurring Washington estate tax by transferring to her and she is taxed
> upon the gift at termination for federal purposes.  Just trying to figure
> out how to get it all to her and she makes all the taxable gifts during her
> lifetime.....Now, the coffee has worn off and I need more! :)
>
> Have a good weekend.
>
>
>
> On Fri, Nov 21, 2014 at 11:10 AM, Sam Furgason <sam at furgasons.com> wrote:
>
> Katherine,
>
>
>
> If you have sufficient funds to merit a federal QTIP, his estate should
> have no DSUE because you will have used all of his exclusion amount. That
> should apply unless the first spouse was impecunious, in which case DSUE
> would apply (but your post refers to her “half”). ($30m/2 = $15m, which is
> >$5,340k.) The same logic would apply if the first decedent’s estate is
> $30m (your question does not make it clear in my mind whether the first
> spouse’s estate is $30m or the entire community estate is $30m, but implies
> the latter.)
>
> As for terminating the QTIP (which I believe gifting of any income
> interest would do, per 2519), see if the QTIP language permits liberal
> distributions to the surviving spouse. If so, you could make large
> distributions to the spouse and she could make gifts, without terminating
> the entire QTIP. Since we are near a year end, she could make multiple
> annual exclusion gifts and reduce her taxable estate somewhat. Those gifts
> would be tax free, and could be spread among children, grandchildren, and
> spouses.
>
> Also, if she gives away her own estate entirely, then withdrawals from the
> QTIP are more reasonable, if there is some sort of HEMS type restriction in
> place.
>
> Is a QTIP “termination” even necessary?
>
> Don’t forget, the executor makes the QTIP election; it’s not automatic.
> His executor can make a partial QTIP election rather than a full one, or no
> election at all, so that the portion of the decedent’s trust which is QTIP
> eligible can be defined as part of the overall plan. You can time this
> also, since the federal and state exclusion/exemption amounts rise on
> 1/1/2015. I don’t think the annual exclusion is changing for next year, but
> if you have 5 eligible gift recipients, that’s an extra $70k which will not
> be taxed at either the state or federal levels, thereby justifying  a part
> of your fees.
>
>
>
> S
>
>
>
> *From:* wsbapt-bounces at lists.wsbarppt.com [mailto:
> wsbapt-bounces at lists.wsbarppt.com] *On Behalf Of *Katharine P. Bauer
> *Sent:* Friday, November 21, 2014 8:22 AM
> *To:* probate
> *Subject:* [WSBAPT] 2519 and termination of QTIP
>
>
>
> 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
>
> This message is confidential and may be protected by the attorney-client
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>
> --
>
> 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
>
> This message is confidential and may be protected by the attorney-client
> privilege; it is intended solely for the use of the individual named above.
> If you are not the intended recipient, you are hereby advised that any
> dissemination, distribution, or copying of this communication is strictly
> prohibited. If you have received this e-mail in error, please immediately
> notify the sender by telephone or e-mail, delete this message from your
> files, and return any printed copies to the sender by U.S. mail. Circular
> 230 Disclosure: Any tax advice contained in this communication (including
> any attachments) is not intended or written to be used, and cannot be used,
> for the purpose of (i) avoiding penalties that may be imposed under the
> Internal Revenue Code or (ii) promoting, marketing or recommending to
> another party any transaction, arrangement, or other matter
>
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