The unlimited marital deduction (IRC 2056) defers estate tax by allowing transfers to a surviving citizen spouse tax-free. Traditional A-B planning splits the first estate into a credit-shelter (bypass) share that absorbs the decedent's exemption and a marital share that qualifies for the deduction. Portability changed the calculus, but marital/credit-shelter structures remain essential for growth capture, GST planning, blended families, and state-tax mismatches.
- The B (bypass/credit-shelter) trust is funded up to the decedent's remaining exemption; its assets and all post-death growth escape estate tax at the survivor's death.
- The A (marital) share qualifies for the marital deduction and is includible in the survivor's estate — preserving a second step-up on those assets.
- The bypass trust can benefit the survivor (HEMS distributions) while remaining outside the survivor's estate, and it shields assets from the survivor's creditors and remarriage.
A qualified terminable interest property (QTIP) trust qualifies for the marital deduction while letting the first spouse control the ultimate remainder — the core tool for blended families. The survivor must receive all income at least annually and no one may have a power to appoint the property to anyone other than the survivor during the survivor's life. The executor elects QTIP treatment on Form 706, and the property is includible in the survivor's estate under IRC 2044.
Reverse QTIP and Clayton elections
A reverse-QTIP election (IRC 2652(a)(3)) lets the first estate remain the transferor for GST purposes so its GST exemption is not wasted. A Clayton contingent QTIP makes the marital/bypass split turn on the QTIP election itself, adding post-mortem flexibility.
Key takeaways
- A-B planning shelters the first exemption and captures growth outside the survivor's estate; the marital share preserves a second step-up.
- QTIP marries marital deduction with remainder control — essential for blended families; use a reverse-QTIP election to preserve GST exemption.
- Disclaimer planning maximizes post-mortem flexibility but depends on a valid, timely qualified disclaimer.
- Portability is simplest and preserves step-up, but a funded bypass trust wins for growth, GST, creditor protection, and low-exemption states.
Authorities
- IRC 2056, 2056(b)(7) (QTIP), 2044, 2518 (disclaimers), 2652(a)(3) (reverse QTIP)
- Estate of Clayton v. Commissioner; Treas. Reg. 20.2056(b)-7(d)(3) — Contingent QTIP.