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B. Whether the Marital Deduction Trust Meets the
Requirements of Section 2056(b)(7)
For the property in the marital deduction trust to be QTIP,
it must be property: (1) which passes from the decedent; (2) in
which the surviving spouse has a qualifying income interest for
life; and (3) as to which an election has been made. Sec.
2056(b)(7)(B)(i). The parties agree that the property passed
from decedent and that a proper QTIP election was made.
Respondent also states in his brief that “the requirements of
* * * [section 2056(b)(7)] for treating the property that funded
the Marital Deduction Trust as deductible initially appear to be
met by the provisions of Section 8. This includes the
requirement that the surviving spouse be entitled to all of the
net income produced by the trust’s corpus.” We also note that in
section 8 of the marital deduction trust, the trustee is directed
to distribute the net income “at least annually”, as provided by
the statute. Additionally, any income accrued but undistributed
at the surviving spouse’s death shall be paid to the surviving
spouse’s estate.
The issue is whether the terms of section 15 of the trust
agreement, the disability section, which are incorporated into
the marital deduction trust by section 8.D. of the trust
agreement, restrict the surviving spouse’s “qualifying income
interest for life” under section 2056(b)(7)(B)(i)(II). As
discussed below, we find that the conflicting terms of sections 8
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