## Facts

- Willis E. Clack died leaving a will directing creation of a trust intended to give his surviving spouse a qualifying lifetime income interest.
- The will authorized the executor, based on post-death circumstances, to allocate some or all of the relevant property either to a marital trust intended for QTIP treatment or to an alternative family (non-QTIP) trust.
- After death, the executor funded a marital trust that entitled the widow to all income for life, payable at least annually.
- The executor timely elected QTIP treatment for the marital trust property on the federal estate tax return and claimed a marital deduction under I.R.C. § 2056(b)(7).
- The IRS issued a notice of deficiency, disallowing the marital deduction on the theory that the executor’s discretionary allocation authority prevented the trust property from qualifying as QTIP.

## Issues

1. Whether trust property qualifies as qualified terminable interest property under I.R.C. § 2056(b)(7) when the governing instrument gives the executor post-death discretion to allocate property between a QTIP marital trust and a non-QTIP family trust, but the executor funds the marital trust and makes a QTIP election.

## Decision

- The Tax Court held that the property placed in the marital trust and covered by the executor’s election qualified as QTIP under § 2056(b)(7).
- The court rejected the IRS claim that the executor’s allocation discretion constituted a disqualifying power to appoint property to persons other than the surviving spouse during her lifetime.
- The marital deduction for the elected QTIP property was allowed, defeating the deficiency to the extent based on disallowance of that deduction.

## Legal Principles

- QTIP qualification under I.R.C. § 2056(b)(7) depends on the interest actually created for the surviving spouse in the property for which a QTIP election is made.
- Executor discretion to choose, before funding and election, whether property will pass to a QTIP marital trust or an alternative non-QTIP trust is an administrative allocation choice and does not itself create a prohibited lifetime power to appoint the elected QTIP property away from the spouse.
- Once the marital trust is funded and the QTIP election is made, QTIP status turns on whether the spouse is entitled to all income for life (payable at least annually) and whether no person holds a power during the spouse’s lifetime to appoint the property to anyone other than the spouse.

## Conclusion

The Tax Court upheld the estate’s QTIP marital deduction because the executor funded a trust that gave the surviving spouse the required lifetime income interest and made a valid QTIP election; the executor’s pre-election discretion to allocate property between marital and family trusts did not, by itself, defeat QTIP treatment.


Estate of Clack v. Commissioner, 106 T.C. 131 (1996)