Tax Consequences Dealing With The Early Termination Of A Generation-Skipping Taxable Marital Trust

An IRS ruling recently held that a surviving spouse was the beneficiary of two marital trusts that were established under the late spouses revocable trust agreement.  One of these trusts was exempt from the generation-skipping transfer tax (GST) while the other was not.  “The provisions of each marital trust provided for the surviving spouse to receive all income during life and granted to the surviving spouse a testamentary general power of appointment (POA) over the assets in the GST taxable trust.”  This article discusses Revenue Procedure 2001-38 which sets forth a rule “that a qualified terminable interest property (QTIP) election is treated as null and void when the election isn’t necessary to reduce the estate tax liability to zero.”  They held that a release of a general Power of Attorney (POA) created a taxable gift under IRC Section 2514(b). 

See Andrew M. Nerney and Andrew B. Seiken, IRS Rules on Tax Consequences Associated With Early Termination of a Generation-Skipping Taxable Marital Trust, Wealth Management, April 25, 2016.

Special thanks to Jim Hillhouse for bringing this article to my attention.