To maximize both spouses use of the generation skipping exemption in an optimal marital deduction plan, what type of marital bequest must be used?

To maximize both spouses use of the generation skipping exemption in an optimal marital deduction plan, what type of marital bequest must be used?

• A. Outright
• B. General power of appointment trust
• C. Qualified terminable interest property trust
• D. Qualified domestic trust

Answer: (C)

This question hinges on using a marital trust that qualifies for the unlimited marital deduction while still enabling future transfers to the next generation to be sheltered from GST tax. A Qualified Terminable Interest Property trust does exactly that: the surviving spouse receives all the trust income for life, but the trust principal remains under the donor’s control. Because the survivor has only a terminable (income) interest, the property qualifies for the marital deduction at the first death, so no estate tax is due then. When the surviving spouse dies, the remaining trust assets can pass to grandchildren or other skip persons, and GST exemption can be allocated to that transfer, maximizing the use of both spouses’ GST exemptions. The other options don’t provide this combination of immediate marital deduction, survivorship income rights, and efficient GST planning: outright bequests miss the structure entirely; a general power of appointment trust risks inclusion in the survivor’s estate and uncertain control; a QDOT is designed for noncitizen spouses and isn’t the standard vehicle for maximizing GST exemption across generations.

This question hinges on using a marital trust that qualifies for the unlimited marital deduction while still enabling future transfers to the next generation to be sheltered from GST tax. A Qualified Terminable Interest Property trust does exactly that: the surviving spouse receives all the trust income for life, but the trust principal remains under the donor’s control. Because the survivor has only a terminable (income) interest, the property qualifies for the marital deduction at the first death, so no estate tax is due then. When the surviving spouse dies, the remaining trust assets can pass to grandchildren or other skip persons, and GST exemption can be allocated to that transfer, maximizing the use of both spouses’ GST exemptions. The other options don’t provide this combination of immediate marital deduction, survivorship income rights, and efficient GST planning: outright bequests miss the structure entirely; a general power of appointment trust risks inclusion in the survivor’s estate and uncertain control; a QDOT is designed for noncitizen spouses and isn’t the standard vehicle for maximizing GST exemption across generations.