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Good news! The IRS just issued, moments ago, a new Revenue Procedure 2016-49, modifying Rev Proc 2001-48, removing a possible grey area in the use of the so-called Clayton election for flexible and comprehensive post-mortem (i.e., portability and reverse QTIP) tax planning, as well as asset protection, blended family planning and remarriage protection, and other goals. The old 2001-48 was issued as a relief measure but left some practitioners wondering if it might be used to invalidate a QTIP election where it was not necessary to avoid estate tax. I fell into the camp of those believing that as a relief measure, the old rev proc could be waived, so I’ve been using Clayton election planning for a long time — but the new rev proc provides clarity that the QTIP election will not be voided where it was made for portability planning:

.02 This revenue procedure does not treat as void QTIP elections made to treat property as QTIP in cases where: 9 (1) A partial QTIP election was required with respect to a trust to reduce the estate tax liability and the executor made the election with respect to more trust property than was necessary to reduce the estate tax liability to zero; (2) A QTIP election was stated in terms of a formula designed to reduce the estate tax to zero. See, for example, § 20.2056(b)-7(h), Examples 7 and 8; (3) The QTIP election was a protective election under § 20.2056(b)-7(c); (4) The executor of the estate made a portability election in accordance with § 2010(c)(5)(A) and the regulations thereunder, even if the decedent’s DSUE amount was zero based on values as finally determined for federal estate tax purposes; or (5) The requirements of section 4.02 of this revenue procedure are not satisfied.

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David R. Duringer, JD, LL.M, is a concealed firearm instructor and tax lawyer specializing in business and estate planning; licensed to practice law in the states of California and Washington. He is managing shareholder at Protective Law Corporation, serving Southern California from its Laguna Hills (Orange County) headquarters and satellite offices in San Diego County (Coronado and Carlsbad).

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