8881. Can a qualified terminable interest property (QTIP) trust be used in a family business succession plan if the business interests at issue are subject to a buy-sell agreement?Alexis Longrcline212015-07-30T16:29:00Z2015-07-30T16:29:00Z24272440Summit Business Media2052862148881. Can a qualified terminable interest property (QTIP) trust be used in a family business succession plan if the business interests at issue are subject to a buy-sell agreement?Using a qualified terminable interest property (QTIP) trust where the business interests at issue are subject to a buy-sell agreement can create estate tax problems if the stock value set by the buy-sell agreement does not meet the requirements of IRC Section 2703 (see Q 8886). Generally, if the requirements of Section 2703 are satisfied, the price specified under the buy-sell agreement will control for estate tax purposes..See, for example, Slocum v. U.S., 256 F. Supp. 753 (S.D.N.Y. 1966). If the requirements are not satisfied, however, the price may be adjusted so that it reflects the true fair market value of the stock. As a result, if the value is adjusted upward, the shareholders who are subject to the buy-sell agreement may be deemed to have received an economic benefit from the surviving spouse’s QTIP because those shareholders were granted the right to purchase the shares at a lower price. To qualify as QTIP property, no person may be given a power to appoint any part of the property to any person other than the surviving spouse unless the power is exercisable only at or after the death of the surviving spouse (see Q 8880)..IRC Sec. 2056(b)(5). If a third party is given the power to purchase shares that would otherwise be QTIP at a price that is eventually found to be lower than fair market value, the QTIP trust may be ineligible for QTIP treatment because, effectively, the difference between the lower price specified in the buy-sell agreement and the higher true fair market value is treated as income that is derived from the shares and granted to a party other than the surviving spouse..See TAM 9147065, where it was found that the first-to-die spouse granted an option for his sons to grant themselves the excess of the fair market value of the shares over the option price, thus defeating the property’s QTIP status. Similarly, if the buy-sell agreement prohibits the QTIP trust from selling the stock without the consent of a third party, the shares will likely fail to qualify as QTIP. One of the essential requirements of a QTIP trust is that it must entitle the surviving spouse to receive all of the income derived from the trust principal. In order to give effect to this requirement, the regulations provide that the surviving spouse must be given the power to require that the trustee convert any unproductive property into income-producing property. Such a power will not disqualify the property as QTIP so long as applicable trust administration rules require the trustee to use the judgment and care in the exercise of the power that a prudent man would use if he were owner of the property. What’s more, a power to retain a residence or other property for the spouse’s personal use will not disqualify the interest passing in trust, .Treas. Reg. §20.2056(b)-5(f)(4). If stock contained in a QTIP trust cannot be sold without the permission of a third party, the surviving spouse’s income rights are not absolute and the property may fail to qualify for the marital deduction..Let. Rul. 9147065.