IRS private letter ruling documents creative lawyering by Florida probate litigators
Veteran Florida probate litigator Amy Beller was kind enough to direct me to Private Letter Ruling 200844010, in which the IRS ruled that if you split a single marital trust into five separate sub-trusts and then terminate just one of those sub-trusts, IRC § 2519 would be triggered only with respect to the terminated sub-trust. The significance of this PLR is that it provides an excellent summary of the transfer-tax consequences you need to both anticipate and deal with any time you terminate a marital trust that's been QTIP'd, while also explaining how to manage those tax issues by elegantly leveraging the flexibility built into Florida's new Trust Code.
Here's a key excerpt from the linked-to PLR:
In the present case, Spouse has a qualifying income interest for life in Marital Trust, and Child 1, Child 2, Child 3, Child 4, and Child 5 are the presumptive remainder beneficiaries. Pursuant to Settlement Agreement, Marital Trust will be divided into five trusts: specifically, four Surviving Settlement Trusts and Child 1’s Settlement Trust. Under State Statute 1, each of the five trusts will be treated as a separate trust for all purposes from the date on which the severance is effective. After the division, Spouse will have a qualifying income interest for life, and Child 2, Child 3, Child 4, and Child 5 will be the remaindermen of the Surviving Settlement Trusts. Child 1’s Settlement Trust will be terminated. Accordingly, based on the facts submitted and representations made, we conclude that the division of Marital Trust into five trusts and the subsequent termination of Child 1’s Settlement Trust pursuant to Settlement Agreement will not be deemed to be a transfer under § 2519 of any property interest, or interest in, the Surviving Settlement Trusts, and therefore, such division and termination will not give rise to any gift tax liability with respect to any property of, or interest in, any of the Surviving Settlement Trusts.
Amy represented the surviving spouse/income beneficiary of the marital trust, so she deserves a good amount of the credit for this PLR. By the way, South Florida tax lawyer Charles Rubin also wrote about this PLR here on his blog Rubin on Tax.
This PLR was actually the result of a team effort of many excellent lawyers, including my NY co-counsel Gary Freidman; our tax counsel Eileen Schwab and Tom Evans; counsel for the plaintiffs, Jamie Pressly, Randy Randolph, Lou Mrachek, John Morrissey, and NY lawyer Linda Wank; and counsel for the co-trustees, Edward Downey, Peter Matwiczyk, Ben Brown, and NY lawyers Josh Rubenstein and Jay Freiberg. While I appreciate the compliment, I'm afraid you have apportioned an unfair amount of the credit to me. Amy