This article reprint was recently published in Steve Leimberg’s Estate Planning Newsletter.

  • A New York court has found that a QTIP Trust, created for New York purposes in 2010 when the federal estate tax lapsed for the year, was not includible in the estate of the surviving spouse for New York estate tax purposes.
  • It’s probably fair to say that, in light of the court’s finding and comments, a statutory change to alter that result might be in the cards.
  • Note that, while the size of New York-only QTIPs filed in 2010 when the federal estate tax lapsed is potentially huge, the rationale of the case does not seem to be limited to estates of surviving spouses where the first spouse died in 2010. 

If an estate was under the federal filing threshold and filed only a New York estate tax return with a pro forma federal return that contained a QTIP election, the same logic should apply to exclude QTIP trust assets from a survivor’s estate.

Other states with a comparable statutory framework might have a similar result. It is unclear at this early point whether the decision will be appealed or how quickly a statutory change might come. In any event, time is probably ticking to take advantage of this interplay between state and federal law.

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