The IRS resolved an important issue when it issued Revenue Procedure 2016-49, effective September 27, 2016, clarifying that the IRS would not disregard qualified terminable interest property (QTIP) elections for estates that also made a portability election.
Uncertainty over when QTIP elections would be respected arose after the IRS stated in a 2001 Revenue Procedure that unnecessary QTIP elections could be disregarded as null for federal gift, estate and GST tax purposes. Under the 2001 Revenue Procedure, a QTIP election could be deemed unnecessary and ignored if the election was not needed to reduce the estate tax value to zero. For example, where a decedent’s estate was under the applicable exclusion amount, the IRS could disregard a QTIP election made by the estate’s executor or personal representative solely for the purpose of preserving the deceased spouse’s unused exclusion amount under the portability rules.
With Revenue Procedure 2016-49, the IRS put doubts to rest by clarifying that it will respect QTIP elections made by estates whose executors or personal representatives properly made a portability election, regardless of the estate tax value before the QTIP election was made. Revenue Procedure 2016-49 also confirms much of the 2001 Revenue Procedure by detailing the requirements for when a QTIP election will be disregarded, such as when an estate has not made a portability election and the estate tax would be zero without the QTIP election.
It appears that portability is here to stay, and Revenue Procedure 2016-49 should provide relief and clarity to those who plan to utilize both QTIP and portability elections. For more information on how Revenue Procedure 2016-49 could affect your or your family’s estate planning matters, please contact Lisa Roberts-Mamone (firstname.lastname@example.org).