EP Clayton Election Trust Considerations in NJ Estate Planning

Choosing the 'Clayton' Election

How a Clayton election works, when to use it in New Jersey, and how it coordinates with portability (DSUE), GST planning, basis strategy, and blended-family protection.

Life and tax laws don’t freeze on the day you sign your plan. Markets move. Real estate gets re-appraised. Congress changes exemption amounts. A Clayton election gives your family post-mortem control. Instead of locking in which assets must be CST (Credit Shelter Trust) and which must be QTIP (Qualified Terminable Interest Property) today, you empower your executor—after seeing real values and circumstances—to elect how much of the marital trust qualifies for the marital deduction (QTIP) and how much does not (funding the CST).

Plain English: with a Clayton clause, we can decide after death how much goes into the spouse-support bucket (QTIP) versus the tax-shelter/protection bucket (CST). The guardrails and remainder beneficiaries are pre-set by you. We handle the modeling, the election on the Form 706 (Estate Tax Return), and the entire administration so your family gets the best result in the moment, not just on paper years earlier.

Important Acronyms

CST — Credit Shelter Trust: Uses the first spouse’s federal exemption and keeps future growth outside the survivor’s estate.
QTIP — Qualified Terminable Interest Property Trust: Gives the surviving spouse all income (and often principal under HEMS—Health, Education, Maintenance, and Support) while preserving your chosen remainder.
DSUE — Deceased Spousal Unused Exclusion: The first spouse’s unused exemption transferred to the survivor via a timely Form 706 portability election.
RLT — Revocable Living Trust: Your core, probate-avoiding hub.
GST — Generation-Skipping Transfer tax and allocation for multigenerational planning.
Reverse QTIP — IRC §2652(a)(3) election to align GST treatment on QTIP property.

Breaking down Clayton

Your Documents Create One “Marital” Trust Shell.
The trust meets QTIP requirements if we elect it to qualify; otherwise, it defaults to a non-QTIP trust (typically the CST) under your terms.
Executor Chooses After Death.
On Form 706, the executor elects how much of that trust qualifies for the marital deduction (QTIP). Non-elected amounts are treated as if they passed not to the spouse—funding the CST.
We Model The Split.
After appraisals and a cash-flow review, we size the CST to capture the exemption and protection benefits, and size the QTIP to support the spouse and optimize basis step-up at the survivor’s death.
Remainder Control Never Changes.
Whether QTIP or CST, you already fixed the remainder beneficiaries (often your children). The election fine-tunes timing and taxation, not who ultimately inherits.

Clayton vs. Fixed-Formula Funding

Fixed-Formula (Old School): “Fund CST to the exemption; remainder to QTIP.” Works, but can mis-size buckets when values swing or laws change.
Clayton (Modern): One marital trust shell → post-mortem election sets the CST/QTIP split based on actual facts. More control, more precision, fewer unforced errors.

Coordination With Portability, Basis & GST

Portability (DSUE): We still file Form 706 to lock in DSUE—belt and suspenders alongside the CST’s sheltering of post-death growth.
Basis Planning: QTIP assets are included in the survivor’s estate and may receive a second step-up in basis; CST assets generally do not. The Clayton toggle lets us dial for income-tax vs. estate-tax trade-offs.
GST Strategy: If multigenerational planning matters, we allocate GST to the CST and may make a reverse QTIP election for part of the elected QTIP so GST exemption tracks the desired remainder.

Retirement Accounts & The SECURE Act

IRAs/401(k)s follow their beneficiary forms, not your Will. We coordinate with a SRT (Stand-Alone Retirement Trust) where protection and tax pacing matter. The Clayton election usually targets non-qualified assets and real estate; we ensure retirement designations align so we don’t accidentally force conduit distributions or lose “separate account” treatment. Funding is non-optional—we quarterback it.

Common Mistakes We Prevent

All-Or-Nothing Elections: Electing 100% QTIP (or 0%) without modeling survivor estate size, basis needs, and spouse cash flow.
Skipping The 706: No return, no portability—DSUE lost.
Inflexible Documents: Missing Clayton language → forced outcomes when the market moves.
SECURE Act Miswiring: Retirement accounts aimed at the wrong trust terms (conduit-only traps).
Unfunded Plans: Deeds/titles/beneficiaries never aligned to the RLT; the “toggle” can’t toggle.
Ignoring GST: Failing to make reverse QTIP where dynasty goals exist.

Our NJ-Focused Process (Design → Draft → Fund → Elect → Maintain)

Design & Discovery Meeting (DDM): We map people/assets, run CST/QTIP scenarios, and stress-test blended-family needs.
Drafting Suite: RLT with Clayton-enabled marital trust, pour-over Will, DPOA (Durable Power Of Attorney), AD (Advance Directive/Healthcare Proxy), HIPAA (Health Insurance Portability and Accountability Act) Authorization.
Funding: We prepare Bargain & Sale Deeds for NJ property (shore/rentals included), retitle brokerage/bank accounts, and align POD/TOD and life-insurance beneficiaries.
Post-Mortem Administration: Appraisals, spouse cash-flow analysis, estate tax modeling, Form 706 with QTIP and (if needed) reverse QTIP elections; we size CST/QTIP to fit.
Ongoing Stewardship: AMP (Annual Maintenance Program)—annual review, funding/beneficiary audit, trustee training. CCP (Continuing Counsel Plan)—quarterly “Advisor Summits” with your CPA/EA and CFP®/RIA; we also handle ILIT Crummey and SRT oversight.

For Professionals

Deeper Technical Notes...

Authority: Clayton-style provisions rely on marital-deduction qualification being elective; the governing instrument must provide that non-elected property passes to a non-marital trust (CST) with separate terms.
Partial Elections: We frequently elect by fraction or pecuniary amount; traceability and accounting are essential.
Investment Policy: Consider unitrust provisions or power-to-adjust for QTIP fairness (income vs. total-return).
S-Corp Shares: If trusts may hold S-corp stock, build QSST (Qualified Subchapter S Trust)/ESBT (Electing Small Business Trust) pathways so the election won’t jeopardize eligibility.
Basis vs. Transfer Tax Modeling: We quantify the marginal estate-tax saved by pushing assets to CST against capital-gains exposure from no second step-up; decision rules memorialized in the fiduciary memo.

FAQs

Q: Is a Clayton election only for “taxable” estates?
A: No. Even if no tax is due, it gives basis and protection flexibility and pairs well with DSUE as insurance against future law changes.

Q: Who decides the split?
A: Your executor (often the surviving spouse with an independent co-fiduciary) after modeling with our team and your CPA/EA.

Q: Does the spouse lose access to CST assets?
A: The spouse can typically receive CST distributions under HEMS; the CST’s purpose is tax shelter and protection, not deprivation.

Q: Do we still need a Credit Shelter Trust if we have portability?
A: Usually yes. Portability doesn’t shelter growth and provides no creditor/remarriage protection. The Clayton election lets us blend both tools precisely.

Q: How does this affect IRAs/401(k)s?
A: Retirement accounts are coordinated separately (often to an SRT). The Clayton toggle usually applies to non-qualified assets and real estate.

Book A Strategy Call

Book A Strategy Call. We’ll show you side-by-side models of CST vs. QTIP vs. Clayton splits for your actual assets, then build a funded, portable, NJ-savvy plan. We also handle the post-mortem election and ongoing maintenance—so your family gets the right outcome when it counts.

Post-mortem Toggle Power.

Clayton Elections in NJ T&E Planning

Build flexibility into your marital trust so your executor can pivot after death—allocating assets between Credit Shelter and QTIP for the best tax and family outcome.