Matthew's Texas Trusts and Federal Gift & Estate Tax Flashcards

• Is an arrangement for making gifts of property and for the management of assets, under which the trustee holds legal title to trust assets for the benefit of the beneficiaries
• Trustee has all of the burdens of ownership (duty to manage, invest, insure, safeguard, etc.);
• Beneficiaries have equitable title and all of the benefits of ownership

(1) Settlor (grantor)
(2) Delivers
(3) Title to Trust Property
(4) To a Trustee
(5) For the benefit of Beneficiaries
(6) With Intent To Create A Trust
(7) Trust must be for a Lawful Purpose
(8) No Consideration is required

• Must have legal capacity; age 18 or over
• Must have capacity to convey title to the trustee
• A higher test than capacity for wills

• Does NOT apply to self-declaration trust or testamentary trust
• For Inter Vivos Trust that names third party as trustee, the mere intent to create a trust, or a gratuitous promise to create a trust is NOT sufficient
• There must be delivery of the subject matter of the trust with intent to convey legal title to the trustee

• Legal title to a specific interest in property must be conveyed to the trustee.
• Subject matter MUST be certain and identifiable
• An expectancy of property or a promise to contribute funds is NOT valid trust property
• A future interest is a presently-owned interest in property that can be used to created a trust, e.g. a vested remainder IS eligible for trust property.
• If there is a promise supported by CONSIDERATION to hold property to be received in the future in trust this IS valid

• Must have legal capacity to contract and to execute a deed, a higher standard of capacity than is required for execution of wills.
• An unincorporated association CANNOT be a trustee
• Banks and trust companies given trust powers in their charters and charities as to charitable trusts can serve as trustees
• NO Trust will fail for lack of trustee, court will appoint

• Individuals MUST post a fiduciary bond to secure performance UNLESS it is waived by settlor
• Corporate Trustee does NOT have to give bond

• Trustee is entitled to reasonable compensation for serving as trustee, and reimbursement for all expenses reasonably incurred in administering the trust

• No one can be compelled to be a trustee and accept the fiduciary responsibilities and duties.
• If person rejects offer court will appoint a new trustee
• Acceptance is given by
(1) Trustee's signature, OR
(2) Acceptance by Conduct, exercising trust powers or performing trust duties

• A trustee may resign as trustee upon
(1) Court approval upon showing that no longer appropriately serve as trustee
(2) Accounting
(i) Property initially received
(ii) Receipts and disbursements
(iii) Property now on hand plus liabilities

• A trustee must have active duties and a fiduciary relationship (Statute of Uses 1535)

• NOT recognized in Texas
• A trustee MUST accept trusteeship in the manner provided by the trust terms
• Persons acting without accepting appointment have NO authority over trust property, and can be sued for any resulting losses

• Must be definite and ascertainable AND their interest must vest if at all no later than lives in being plus 21 years.
Charitable trusts CANNOT benefit identifiable individuals and are NOT subject to RAP
• Acceptance is presumed

• Must be in writing and filed within 9 months after the testator's death
• A disclaimer of an inter vivos trust must be in a written instrument before a notary public and delivered to the trustee no later than 9 months after
(i) Date on which the transfer creating the interest is made
(ii) Date on which the beneficiary attains 21; OR
(iii) In the case of future interests, the date on which the event that causes the taker of the interest to be finally ascertainable and his interest is indefeasibly vested
• Beneficiary may be estopped from disclaiming if he has accepted any benefits under the trust

• All trust must be evidenced by a writing by the settlor
• An oral trust of personal property is valid if it names someone other than the settlor or a beneficiary as trustee, provided that SIMULTANEOUSLY WITH OR PRIOR TO THE TRANSFER, the transferor expresses the intention to create a trust

• A trust may be created only if the settlor manifests an intention to create a trust for some purpose
• Precatory language (hope, wish, desire, etc.) does NOT create an enforceable duty.
• Particular words are NOT necessary

• Trust must be created for a lawful purpose
• A trust will fail if
(1) Calls for the commission of a crime
(2) Calls for the destruction of property
(3) Unlawful condition that is against public policy (e.g. total restraint on marriage)

• In Texas ALL inter vivos trust are revocable and amendable by the settlor UNLESS expressly made irrevocable and unamendable
• Settlor creates a revocable trust and later becomes incapacitated, Guardian does NOT have authority to revoke the trust; ONLY court can revoke a trust
• Divorce revokes ALL trust provisions in favor of a former spouse BUT NOT in favor of former relatives. Unless trust is reexecuted or a contract or court order provides otherwise

• As long as there are more than one or more trust beneficiaries besides the settlor, a trust is not void as an attempted testamentary disposition even though the settlor retains ANY ONE OR MORE of the following rights and powers
(i) Income for life
(ii) Power to revoke, alter or amend trust
(iii) Power to control trustee in the administration of the trust
(iv) Power to add property, life insurance proceeds, employee benefits to the trust
(v) Settlor can name herself trustee, to serve as long as she has capacity

• A testamentary gift to a trust provides a means for adding testamentary assets to a trust created by the testator during lifetime
• Pour-Over Gift is valid even if
(i) Trust is subject to revocation and amendment and is later amended
(ii) Unfunded
• Trust need NOT BE IN EXISTENCE BEFORE OR CONCURRENTLY WITH WILL; it can be created AFTER the will is signed

• Unfunded revocable life insurance trusts are valid, and pour-over gifts to these trusts are valid.
• Designation of the "trustee named in my will" as beneficiary of life insurance proceeds is valid
• If no qualified trustee makes a claim to the proceeds in 18 months after the insured's death, the proceeds are paid to the contingent beneficiary or to the insured's estate
• A standard provision gives spendthrift protection against claims of the insured's creditors UNLESS the proceeds are payable to the insured's executor or estate

• A WROS in a joint account must be expressly stated in an agreement:
(i) Signed by the party who dies
(ii) Stating the account is to "vest in and belong to the surviving party"
• Extrinsic evidence is NOT admissible to show the intent to create WROS, or to deny its existence

• Under an "A, trustee for B" account A (the depositor) retains the passbook and continues to make deposits and withdrawals. B the beneficiary has no beneficially interest during A's lifetime, but succeeds to whatever is in the account at A's death if he survives A.
• An "A, pay on death to B" account leaves the depositor the exclusive right to make withdrawals with B having no beneficial interest during A's life, but succeeds to the balance at A's death if B survives A.

• Provides a means to make a gift to minors that avoids the appointment of a guardian and qualifies for the $13,000 annual exclusion under the Federal Gift Tax.
• The gift is made by transferring property to someone "as custodian for" the named minor
• Custodian has the power to: manage and invest the property, pay the property to the minor or for the minor's benefit, turn the property over to the minor when the minor reaches 21, and sell, exchange, or convert the property without court approval

• Is an agency relationship that does NOT terminate on the disability or incapacity of the principal.

• Requires
(1) Writing--should contain words such as "this power of attorney is not affected by subsequent disability or incapacity of the principal"
(2) Signed
(3) Acknowledge before a notary
• Does NOT lapse due to the passage of time, unless a time limitation is stated

• Divorce or annulment of marriage terminates the power of attorney
• Appointment of a guardian of the principal's estate
• Appointment of a temporary guardian could suspend powers of Durable POA
• Bankruptcy does NOT terminate
• Third Party who acts in good faith without knowledge of the termination or revocation is protected

• Must timely inform the principal of all action taken pursuant to the POA
• Maintain records of each action
• Make an accounting if principal demands

• Neither the agent nor the health care provider is liable for health care decision made in good faith
• Requirements MUST be witnessed by two person, at least one of whom is NOT
(1) Attorney in fact
(2) Relative of principal
(3) Principal's heirs or beneficiaries
(4) Attending physician
(5) Employee of physician
(6) Creditor of principal's estate
• May be revoked by creation of a new POA or by notifying the agent or the health care provider in writing

• Must be for a charitable purpose, a purpose that is limited to a particular class of the public may be charitable, but the class must not be too narrowly defined
• Need indefinite beneficiaries, CANNOT benefit identifiable individuals
• NOT subject to RAP, UNLESS executory limitation shifting the interest from private use to a charity or charitable to private
• Cy Pres is applied if charitable purpose is fulfilled
• If beneficiary no longer qualifies as a charity the Trustee may, WITHOUT court approval, designate a replacement beneficiary with similar or same purpose to failed beneficiary
• Attorney General represents all potential beneficiaries and must be given notice of any judicial proceeding involving a charitable trust.
• In Texas, a settlor may sue to enforce the charitable trust

• Is NOT actually a trust for it does NOT create a beneficiary who can enforce the trust
• The trustee is on her honor in deciding whether to perform the trust, if she chooses not to then a resulting trust is formed in favor of residuary beneficiaries
• Subject to RAP unless limited to 21 years OR perpetual care trusts for cemetery maintenance

• A trust for the care of an animal alive during the settlor's lifetime is VALID
• Trust terminates at animals death
• Excess trust principal not needed for the animal's care may be distributed to the settlor or her successors
• Trust may be enforced by a person named in the trust or by a person appointed by the court

• Based on the implied or presumed intent of the settlor rather than on any expressed intent
• Trust Code does NOT apply
• Trustee's ONLY DUTY is to HOLD AND CONVEY PROPERTY in accordance with the demands of the party deemed to be the beneficiary
• Can arise from failure of an express trust or there is an incomplete disposition of the trust assets

• When on party provides the purchase price of property and title is taken in the name of another UNRELATED party, a PMRT is presumed, where by the presumption is that the purchaser did NOT intend to make a gift.
• Thus the other person is just holding a PMRT for the purchaser and the purchaser can compel a reconveyance at any time
• Presumption can be rebutted by showing that a gift or a loan was intended
• The PMRT does NOT arise when the grantee is an object of the purchaser's bounty. Instead the presumption is a gift

• Trust Code does NOT apply as this is an equitable trust created to meet any situation in which a party would be UNJUSTLY ENRICHED as a result of WRONGFUL CONDUCT
• Examples--transfer procured through duress, undue influence, mistake, or fraudulent misrepresentation; murder committed by heir or beneficiary, etc

• The Statute of Frauds prevents proof of an oral express trust as to land
• However a Constructive Trust may be imposed in favor of the intended beneficiary if the grantee's promise is proved by clear and convincing evidence there was
(1) Fraud in the inducement
(2) Duress or undue influence; OR
(3) Confidential relationship between grantee and grantor

• If a will makes an absolute gift, and a promise to hold the property in trust is alleged
• Extrinsic evidence is admitted
• Court will NOT enforce the oral trust but will create a constructive trust to prevent unjust enrichment if there is clear and convincing evidence

• Gift in will made to a person "in trust" but does not name the trust beneficiary
• Extrinsic evidence is NOT admitted
• Trustee holds on resulting trust for testator's legatees or heirs

• Spendthrift clauses are given full effect in Texas
• Spendthrift trusts protect a trust beneficiary's interest from creditors by prohibiting voluntary assignment or involuntary transfer of the beneficiary's interest. Thus, judgment creditors CANNOT reach beneficiary's interest
• EXCEPTIONS
(1) Contracts for Necessaries
(2) Child Support Obligations
(3) Any interest retained by the Settlor; and Revocable Trusts
(4) Federal Tax Liens
• NOT lost if beneficiary has
(1) Invasions power limited by an ascertainable standard relating to the beneficiary's health, education, maintenance or support
(2) An inter vivos or testamentary power of appointment
• Once the income is distributed it is NO longer subject to the spendthrift clause and can be reached by creditors

• A trustee must exercise discretionary power in good faith and in accordance with terms
• Beneficiary CANNOT compel a distribution
• NOT reachable by beneficiary's creditors
• If the discretionary trust is in favor of the Settlor, a creditor CAN REACH the settlor's interest to the maximum extent that the trustee could make discretionary distributions for the Settlor's benefit

• Trustee's discretion is tied to a standard, e.g. "amount necessary for beneficiary's support.
• Other sources of income are taken into account
• Beneficiary CAN compel distributions up to the standard
• Support creditors CAN reach support trusts to the extent that the beneficiary himself can reach it

• A spendthrift provision is invalid with respect to any interest retained by the settlor; his creditors can reach that interest
• If a trust is REVOCABLE by the settlor, his creditors can reach the entire trust property EVEN IF the Settlor does NOT reserve any beneficial interest

• Trust Code applies automatically to all trusts in the absence of provisions altering or enlarging trustee's powers and duties
• If a fee simple owner can take an action then a trustee can take an action
• MANDATORY Rules
(1) Requirements for creating a trust
(2) Trustee liability for breach of trust
(3) Trustee's duty to account and to act in good faith
(4) Limitations period for commencing judicial proceedings
(5) The power of the court to:
(i) Modify,
(ii) Terminate at trust,
(iii) Remove a trustee,
(iv) Require a fiduciary bond, or
(v) Adjust or deny a trustee's compensation

• Jurisdiction--District Court and Statutory Probate court have concurrent jurisdiction
• Venue--If an individual trustee (i) county of trustee's residence OR (ii) county in which situs of trust has been maintained.
• Venue Two or More Trustees--county in which situs of trust has been maintained.
• Venue Corporate Trustee--county in which situs of trust has been maintained

• Trust beneficiaries are entitled to an accounting ON DEMAND, no sooner than 12 MONTHS after trust was created; and to successive accountings on demand at same intervals
• CANNOT restrict or eliminate the right by beneficiaries who at the time of the demand
(1) are entitled or permitted to receive distributions from the trust, OR
(2) who would receive a distribution if the trust terminated

• Self Dealing
• Imprudent Investor
• Exercise power not granted

(1) Sell the property at public or private sale
(2) Lease the property for any term the trustee deems appropriate
(3) Give a mortgage
(4) Make improvements
(5) Make repairs
(6) Give mineral leases
(7) Partition and subdivide the property

• CAN BE WAIVED BY SETTLOR
• Self-Dealing Transactions are PROHIBITED:
(1) Trustee cannot borrow trust funds or use trust assets as collateral for a personal loan (EXCEPTION corporate trustee bank can invest in own bank accounts and settlor can authorize investment in bank's c/ds)
(2) Trustee cannot buy or sell trust assets to self
(3) Trustee cannot loan funds to the trust, and any interest earned on such a loan must be returned to the trust. Any security received in connection would be lost
(4) Trustee cannot profit from serving as trustee (except for being compensated)
(5) Corporate trustee cannot buy its own stock as trust asset (can RETAIN stock when received if it's a prudent investment)
• Indirect Self-Dealing--prohibition of self-dealing applies to relatives and business associates and to a corporation which trustee is a director, officer, or principal shareholder
• MAY loan funds to beneficiary if prudent investment

• All the beneficiary has to show is that the trustee engaged in a self-dealing transaction that was not authorized by the settlor or the court; no further inquiry is made.
• There is NO defense not good faith or reasonableness; the only issue is damages

• If the trustee breaches ANY fiduciary duty (self-dealing, speculative investment, or exercise of power not granted) in addition to bringing an action to remove the trustee, beneficiary has the option to:
(1) Ratify the transaction and waive the breach of trust
(2) Sue for the resulting loss, called a SURCHARGE action
(3) If trustee still have possession of the property, beneficiary can petition for the imposition of a constructive trust

• Does NOT begin to run on action against a fiduciary unless and until he
(1) Repudiates the trust (denies the existence of a trust)
(2) Dies or resigns, OR
(3) Gives an accounting that makes full disclosure of the facts upon which the action is based
• If the action against the trustee is based on fraud, the SoL does not begin to run until the Plaintiff knew or should have known of the fraud

• Acting as a prudent investor
• Duty to insure against loss, IF a prudent investor would insure such assets, even if Settlor did not in his lifetime

• Where there are 2 or more trustees the decision of the majority of trustees rules
• Each co-trustee has an affirmative duty to prevent a breach of trust by a co-trustee and if co-trustee is not able to dissuade other trustees from taking an improper action he MUST, to protect himself:
(1) NOT participate in the transaction
(2) Written expression of dissent to other trustees

• Texas has enacted the UPIA, which is based on modern portfolio theory of investing.
• Under UPIA a trustee must exercise reasonable care, skill and caution in investing
• Investment decisions are evaluated in the context of the ENTIRE trust portfolio and as part of the OVERALL investment strategy
• May invest in ANY kind of property or investment
• General duty to diversify investments unless a reasonable determinate is made that trust better served
• A trustee MAY DELEGATE investment and management functions BUT must act prudently in (1) selecting, (2) establishing scope and terms, and (3) periodically reviewing the agent's actions

• Under UPIA Trustee must maintain a custom-tailored investment strategy that will effectuate settlor's intent as to the purpose of the particular trust, taking into account such factors as:
(1) ***Role that each investment plays within the overall trust portfolio
(2) ***Expected total return from income and capital gain
(3) General economic conditions
(4) Possible effect of inflation or deflation
(5) Expected tax consequences of investment decisions or strategies
(6) Needs for liquidity
(7) Asset's special relationship or value to the purposes of the trust or a beneficiary, AND
(8) Any differing interest of the income beneficiaries and the remaindermen

• Total returns, taking into account potential appreciation and capital gain as well as ordinary income
• Prudence is measured by conduct at the time the investment decision was made, NOT by hindsight

• Texas has enacted the UP&IA) which governs the allocation of receipts and expenses between income and principal amounts.
• Trustee can exercise ADJUSTMENT POWER in favor of income beneficiary where appropriate, and can allocate capital gain and principal to income
• Trustee CANNOT exercise Adjustment Power if
(1) It would have an adverse tax effect on the trust or beneficiaries
(2) Trustee is a beneficiary of the trust
(3) Adjustment would benefit the trustee directly or indirectly

• Purpose and expected duration of the trust
• ***Intent of the settlor as to respective interest of the beneficiaries
• ***Net amount of ordinary income and capital gain available for allocation
• Circumstances of the beneficiaries
• Need for liquidity, regularity of income, preservation of capital
• ***Any increase or decrease in value of trust assets
• ***Whether the trust gives the trustee a power to distribute principal
• Effect of economic conditions, inflation, and deflation
• Anticipated tax consequences

Following are considered allocated to income:
• Interest
• Rental Income
• Cash Dividends
• Delay Rentals
• 10% of proceeds from liquidating assets (patents, copyrights, etc.)
• Production payments to extent the amount removed does not exceed rate of growth
• Periodic proceeds from a deferred compensation plan (pension plan) to extent payment characterized as income
• Net proceeds from sale of timber to extent the amount does not exceed rate of growth
• For pension plans, annuities and IRAs that name a trust as beneficiary, distribution are allocated to income until payments EQUAL 4% of the plan's or IRA's value at the beginning or the account period

Following are considered allocated to principal:
• Eminent domain awards
• Insurance proceeds for trust property destroyed by fire
• Extraordinary receipts (proceeds from sale of trust assets)
• Property other than money received from an entity (stock dividends)
• Proceeds from contract that name trust or trustee as beneficiary
• 90% of proceeds from liquidating assets (patents, copyrights)
• Production payments to extent the agreement does not provide an interest factor
• Net proceeds from sale of timber to extent the amount removed exceeds rate of growth
• Periodic proceeds from a deferred compensation plan to extent payment not characterized as income
• For pension plans, annuities and IRAs that name a trust as beneficiary, distribution are allocated to income until payments EQUAL 4% of the plan's or IRA's value at the beginning or the account period

Expenses Charged to Income:
• 50% of trustee's commissions
• 50% of expenses for accountings, judicial proceedings, and other matters affecting income and remainder interest
• ORDINARY EXPENSES incurred in administration, management, and preservation of trust property (e.g. repairs, taxes, mortgage interest)
• Insurance premiums covering loss of a principal asset

Expenses Charged to Principal:
• 50% of trustee's commissions
• 50% of expenses for accountings, judicial proceedings, and other matters affecting income and remainder interest
• Mortgage principal payments
• Expenses of a proceeding that concerns principal interest
• Estate Taxes
• Expenses related to environmental matters

• Royalties and bonuses are allocated equitably
• An allocation is presumed to be equitable if it follows the federal income tax depletion allowance which is currently 15%.
• Therefore from a $100,000 of bonus and royalty, allocation $15,000 to PRINCIPAL to cover depletion and $85,000 to income
• Before UP&IA (Jan. 1, 2004) the allocation rule under the Trust Code was 27 1/2% to Principal for depletion and 72 1/2% to income

• When a trustee enters into a contract that is within his powers, suit against the trustee is in his REPRESENTATIVE CAPACITY and satisfaction of the judgment is by execution on the trust property.
• Plaintiff MAY hold Trustee personally liable on the contract, if the contract does not exclude such personal liability.
• Addition of the words "trustee" or "as trustee" after the trustee's signature is prima facie evidence of an intent to exclude the trustee from personal liability

• Trustee is personally liable for torts committed by itself and its agents
• Trustee is entitled to reimbursement from the trust estate
(1) If tort was common incident of the business activity in which the trustee was properly engaged when the tort was committed
(2) Although action was not a common incident of such activity, neither the trustee nor his officer or employees were guilty or actionable negligence or intentional misconduct in incurring the liability
(3) The tort's commission increased the value of the trust property
• Exculpatory clause that relieves trustee from liability for ordinary negligence is VALID, though they are strictly construed. (An exculpatory clause by itself does NOT authorize self-dealing)
• Suit is against the trustee in his individual capacity, not against the trust. A trust (or an estate) is not an entity that can be sued.

• A beneficiary is liable for trust losses when she wrongfully deals with trust property, consents to or participates in a trustee's wrongful actions, fails to repay an advance from the trust, etc.
• A trustee can offset any such liability against the beneficiary's interest in the trust unless the trust provides otherwise

• Third parties who deal with a trustee in good faith and for value without notice of misconduct, or who in good faith pay money to a trustee, are protected from transaction's latter being questioned because of the trustee's misconduct

• Generally the TRUSTEE, who hold legal title to the trust assets can bring an action against a third party
• EXCEPTIONS
(1) If the trustee is NOT able to bring the action or refuses to do so, the beneficiaries can sue the third party directly
(2) If the third party participates with the trustee in committing a breach of trust, a direct action is allowed

• Upon petition of a trustee or beneficiary, court may order that the trust be changed, that trust terms be modified, that the trustee be directed to do acts that are not authorized, or prohibited from doing acts that are required by the trust, or that the trust be terminated if one of the following tests is met:
(1) Purpose of the trust or any provision thereof have been fulfilled; or have become illegal or impossible to fulfill
(2) Changed Circumstances: because of circumstances NOT known or anticipated by the settlor, the modification or termination will FURTHER THE PURPOSE OF THE TRUST.
(3) Achievement of tax purposes: modification or termination is necessary or appropriate to achieve the settlor's tax objectives

• After giving notice to beneficiaries, the trustee of a trust having value of LESS THAN $50,000 may terminate the trust WITHOUT court approval if the trustee determines that the cost of administration does not justify continuation of the trust

• Except for uneconomical trusts, modification or early termination of a trust MUST be by court order after hearing; it cannot be extra-judicial agreement of the parties
• EXCEPTION: division of the trust into 2 trust or merger of two trusts into 1 trust, can be accomplished without judicial proceedings. The division or merger can be done for ANY reason, but is usually done for tax purposes

• After a trust terminates, the trustee may continue to exercise trust powers for the reasonable time needed to:
(1) Wind-up Trust Affairs
(2) Make Distributions to Beneficiaries

• Federal Estate Tax grants a $3.5 million EXEMPTION for estates of decedents dying in 2009
• For an estate UNDER $3.5 million NO estate tax return has to be filed
• The $3.5 million is sometimes referred to as the CREDIT SHELTER

• No Gift Tax has to be paid UNLESS and UNTIL cumulative lifetime taxable gifts exceed $1 million
• NO Estate Tax has to be paid unless (i) cumulative lifetime taxable gifts PLUS (ii) taxable estate exceeds $3.5 million

• Is given under BOTH Gift Tax and Estate Tax for qualifying gifts to a spouse
• Allows gifts WITHOUT diminution of the estate tax
• To Qualify for marital deduction, the property MUST be left in a form that will cause it to be taxed in surviving spouse's estate at his or her death
• Thus, the marital deduction does NOT save taxes it just defers the estate tax until the spouse's death

• Gives the surviving spouse outright "the smallest amount that will produce the largest taxable estate that will result in no estate taxes being payable by my estate, taking into account the value of other gifts to my wife that qualify for the marital deduction."
• Thus, $3.5 million should be in Decedent spouse's estate while the rest goes to spouse through marital deduction

• A beneficiary (spouse or child) can be given a life income interest and LIMITED powers over trust principal, all without causing the property to be taxed in the beneficiary's estate on her death.
• The trust will not be taxed in the beneficiary's estate as long as she is NOT given a power of General Appointment, she MAY have Special Power of Appointment
• Surviving spouse MAY invade/demand trust principal for Health, Education, Maintenance, and Support and NOT be a general power of appointment (if it was for spouses "comfort," "well-being", or "benefit" then it WOULD create the power of appointment)

• Qualified Terminable Interest Property (QTIP) election: Congress has permitted the use of certain trust to qualify for the marital deduction
• To be eligible for a QTIP election as a qualified terminable interest trust
(1) Income must be payable to spouse annually for life. (If the income interest terminates on the spouse's remarriage the trust is NOT QTIP)
(2) During the spouse's lifetime, no other person can be a permissible beneficiary of the trust (even in cases of emergency for the spouses children CANNOT make any distributions of principal)
(3) Executor must make a QTIP election on estate tax return

• Interest owed by a decedent receives a new basis equal to the asset's date-of-death value
• The ENTIRE COMMUNITY PROPERTY receives a new basis equal to its date-of-death value, even though only 1/2 was decedent's estate

• For a remainder interest passing to charity, there is NO charitable deduction under the income tax, gift tax, or estate tax, UNLESS the gift takes the form of:
(1) Charitable Remainder Annuity Trust (CRAT)--a stated dollar amount, which can be NO less than 5% of the initial trust corpus, is payable to the individual beneciary for life
(2) Charitable Remainder Unitrust (CRUT)--a stated percentage (which can be no more than 5%) of the trust corpus, valued annually, payable to individual beneficiary for life

• There is a $13,000 PER DONEE annual exclusion under the gift tax.
• The exclusion is available for gifts of present interest, but NOT for gifts of future interest
• The Annual Exclusion does NOT count against the $1 million Gift Tax exemption equivalent

• There is an UNLIMITED exclusion for tuition and medical payments if BUT ONLY IF the payment is made DIRECTLY to the SERVICE-PROVIDER.