854 / What is qualified terminable interest property (QTIP)?
“Qualified terminable interest property” (QTIP) means property (1) which passes from the decedent, (2) in which the surviving spouse has a “qualifying income interest for life,” and (3) as to which the executor makes an irrevocable election on the federal estate tax return to have the marital deduction apply. The surviving spouse has a “qualifying income interest for life” if (1) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, and (2) no person has a power to appoint any part of the property to any person other than the surviving spouse unless the power is exercisable only at or after the death of the surviving spouse.1 Apparently, the last requirement is violated even if it is the surviving spouse who is given the lifetime power to appoint to someone other than the surviving spouse.2 The QTIP rules allow a decedent to provide for a surviving spouse, receive the marital deduction, and pass the remainder to beneficiaries the decedent selects in his will.
Certain “terminable interests” in property do not qualify for the marital deduction. The purpose of this rule is to ensure inclusion in the surviving spouse’s estate of any property remaining in her estate at her death which escaped the initial tax in the predeceased spouse’s estate.
A “terminable interest” in property is an interest which will terminate or fail on the lapse of time or on the occurrence or the failure to occur of some contingency. Life estates, terms for years, annuities, patents, and copyrights are therefore terminable interests.3 Some terminable interests are deductible and some are nondeductible under the marital deduction law. In general, a “terminable interest” is nondeductible if (1) another interest in the same property passes (for less than an adequate consideration) from the decedent to someone other than his spouse or his spouse’s estate, and (2) the other person may possess or enjoy any part of the property after the spouse’s interest ends.4