New York Recognizes State QTIP Election Despite Absence of Federal Estate Tax

Yesterday the New York State Department of Taxation and Finance announced that New York State will allow estates of decedents who die in 2010 to elect to take a marital deduction for Qualified Terminal Interest Property ("QTIP") even though no Federal Estate Tax return is required.

Traditionally, New York would only permit an estate to make a QTIP election if the estate was entitled to the election under Federal law. Since in 2010 there is no Federal estate tax, there has been speculation among New York estate planning attorneys whether New York would permit a state QTIP election even though the Federal QTIP election does not exist in 2010. Attorneys have been greatly concerned about this issue because the common estate tax planning provisions incorporated in wills and trusts are predicated upon the existence of the QTIP election. If a New York State QTIP election were not allowed in 2010, then the dispositions of many estates might have been significantly different than what was intended at the time the estate plan was created with the expectation that a State QTIP election would be available.

Fortunately, New York has taken a pragmatic approach to this issue that will surely prevent a lot of aggravation and heartache.