What Can We Learn From Real Estate Tycoon, Sidney Kalikow?

Major New York player, Sidney Kalikow, died in 1990 with a last will and a qualified terminable interest property (QTIP) trust for the benefit of his wife, Pearl Kalikow.  Despite the estate plan, after Pearl’s passing a long battle ensued regarding the trust assets and income.  Pearl’s estate claimed that the trust owed it $16.9M in undistributed income.  After several years of litigation, the parties settled on $6.57M and the settlement agreement payment was deducted by both the trust and the Pearl’s estate. 

Enters stage left, the IRS, and challenges the categorization of the deductions.  You may not double dip, says the IRS.  The IRS wone that one.

So, what can we learn from the mogel’s mess?  We can talk about QTIP trusts a bit. 

Not to be confused with the furry sticks for your ear-wholes, QTIP trusts are very similar to a marital A/B trust, just a bit more restrictive.  In a traditional QTIP trust, when one spouse dies, the surviving spouse has limited access to the trust assets and only receives income from the assets in the QTIP trust for the remainder of their life. When the surviving spouse eventually dies, the QTIP trust is then distributed to other beneficiaries, such as the couple’s surviving children or grandchildren.

There are a few reasons why the first spouse wouldn’t want to simply leave all of their property to the surviving spouse outright. 

1.  A QTIP trust prevents the surviving spouse from altering the estate plan after the first spouse’s death.
2. A QTIP trust can protect the trust assets from the second spouse’s creditors by limiting the second spouse’s control of the trust assets.
3. A QTIP trust can protect the trust assets from the possibility of the second spouse getting scammed by predators.
4. A QTIP trust can also provide important federal estate tax benefits (Florida does not have a State estate tax!) This is an important tool for larger estates (exceeding the combined federal gift and estate tax exemption, currently $22.8 million).

And we learn that QTIP trusts are a very useful tool but must be managed carefully to avoid tax consequences.  And as always, we learn never to mess with the IRS.