189 / May a trust intended to qualify for the marital deduction as qualified terminable interest property (QTIP) authorize the trustee to retain or acquire life insurance policies?

Under a qualified terminable interest property (QTIP) trust, the surviving spouse must be entitled for life to all the income. This condition contemplates a trust holding income-producing property. Thus, if the trustee is empowered to retain or acquire non-income-producing property (such as life insurance), the condition probably will not be satisfied unless the trust gives the surviving spouse the power to compel the trustee to convert the non-income-producing property to income-producing property, or unless the trustee is restrained under a state law “prudent person” rule to treat the surviving spouse fairly by protecting the spouse’s income interest.¹

---

1. TAM 8745003.