Estate of Rapp v. Commissioner

The executor of Mr. Bert Rapp’s estate appeals the tax court’s determination that a trust established by Mr. Rapp does not qualify as “qualified terminable interest property” (QTIP), as defined by 26 U.S.C. § 2056 (b)(7). As such, the value of the trust may not be deducted when determining federal estate taxes owed.

We have jurisdiction, 26 U.S.C. § 7482 , and we affirm.

I.

The testator, Mr. Bert Rapp, died in February 1988. He was survived by his wife, Laura Rapp, and two children, Richard and David Rapp. Mr. Rapp willed his one-half of the community property to a trust. 1 Richard is the executor of the estate under Mr. Rapp’s will and trustee of the trust. All relevant parties are citizens of California.

The issue in this case is whether the trust created by Mr. Rapp’s will constitutes a QTIP trust, qualifying it for the marital tax deduction. A QTIP is an exception to an exception. Generally, the value of property passed directly from a testator to a surviving spouse is deducted before computing federal estate taxes. 2 26 U.S.C. § 2056 (a). However, if the interest passing to the spouse consists only of a life estate or other terminable interest, the value of that interest…