If Fred dies in 2011 with a $4,000,000 estate and is survived by his second wife, Mabel, Fred’s estate plan may provide for a QTIP-eligible trust for Mabel’s benefit, remainder to Fred’s children. Although the QTIP election is not necessary in order to zero out Fred’s estate taxes, making a QTIP election could be desirable because of potential increase in basis at Mabel’s subsequent death if the trust assets were included in her estate.
Rev. Proc. 2001-38 precludes the QTIP election unless doing so reduces the estate tax. Thus a change in basis may be achieved only by giving the surviving spouse some modicum of control over the assets to be included in the spouse’s estate (e.g. a testamentary power of appointment in favor of the creditors of her estate). See e.g. PLRs 200407016, 200603004, and 201112001. The original policy was to help taxpayers avoid inclusion in the survivor’s estate of “unnecessary” assets. Such a policy might support allowing a QTIP election to achieve a basis change at the second spouse’s death but there is scant authority to support the argument.
In PLR 201338003 the surviving spouse or executor properly allocated all assets to the credit shelter trust but listed those assets on Schedule M of the 706 and was deemed to have made a QTIP election. The PLR applied Rev. Proc. 2001-38 to void the QTIP election.