Clayton Election Planning in New Jersey

TL;DR: A Clayton election lets the estate’s fiduciary choose — after death, when values and tax law are known — how much trust property receives the federal QTIP marital deduction and how much passes under nonmarital (credit shelter) trust terms. It is relevant primarily for married couples with federal estate-tax exposure who want to preserve post-death flexibility rather than locking in a split when documents are signed.

The reason for the technique

A Clayton election provision gives the executor or trustee a post-death choice about how much property should receive QTIP marital-deduction treatment and how much should pass under nonmarital trust terms, often to a credit shelter trust. Instead of locking in the split when the documents are signed, the plan lets the fiduciary decide after death, when asset values, tax law, family needs, and filing requirements are known.

This is a narrow, purpose-built technique. It is most relevant for married couples with federal estate-tax exposure, blended-family concerns, generation-skipping planning, volatile assets, or genuine uncertainty at signing about whether portability, basis planning, or trust protection should receive priority.

How the election works

The estate plan creates a trust structure that can qualify for the federal QTIP marital deduction if the fiduciary makes the election on the federal estate tax return. Treasury regulations allow a QTIP election for all or part of qualifying property, including a formula or fractional election, if the trust and administration satisfy the regulatory requirements.

Clayton-style drafting uses that election as the switch. The elected share is administered under the marital-deduction terms. The non-elected share passes under the alternate nonmarital terms stated in the document, often a credit shelter or family trust. The document must say where each share goes; the tax election cannot supply missing trust terms.

The drafting must be precise. The surviving spouse must receive the required income interest for QTIP property. The non-elected property must have a valid separate destination. The fiduciary must understand the tax and family consequences before filing.

Why it matters in 2026

The IRS has announced a 2026 federal estate-tax basic exclusion amount of $15,000,000 for estates of decedents dying during 2026. For married couples whose combined estate could approach that threshold, the Clayton structure preserves flexibility if values change between signing and death. It can also help when the first death occurs before appraisals, tax projections, or family circumstances are settled.

New Jersey no longer imposes a separate estate tax for deaths on or after January 1, 2018. New Jersey inheritance tax remains. Transfers to a surviving spouse are Class A and generally exempt, but non-Class-A remainder beneficiaries — siblings, nieces, nephews, and unrelated persons — are subject to NJ inheritance tax. A Clayton plan should still address New Jersey tax and administration issues, especially for blended-family trusts with non-Class-A beneficiaries in the remainder.

Decisions the fiduciary must document

• Whether a federal estate tax return is required or advisable for portability.
• Whether QTIP treatment, credit shelter funding, or portability better serves the surviving spouse and descendants.
• How asset basis, future appreciation, and liquidity compare across funding choices.
• Whether GST exemption should be allocated and whether a reverse QTIP election is appropriate.
• Whether the fiduciary has a personal interest that requires independent advice or court direction.

Drafting cautions

Clayton provisions should not be copied into every marital trust. They work only if the trust terms, fiduciary powers, tax elections, and accounting provisions fit together. A surviving spouse serving as executor may be legally permissible, but the plan should consider whether an independent co-fiduciary or tax advisor is needed when the election affects competing beneficiaries.

The document should also address payment of expenses and taxes, income during administration, fiduciary access to appraisals, and how beneficiaries will be informed of the election.

Related topics

• Estate Planning
• Revocable Living Trusts
• QTIP Trusts
• Credit Shelter Trusts
• Portability and DSUE Planning
• Trust Administration
• Probate and Estate Administration
• Wills

Contacting Simon Law Group or submitting an inquiry does not create an attorney-client relationship. Please do not send confidential information until the firm has confirmed it can discuss your matter.

Responsible Attorney: Britt J. Simon, Esq., Managing Partner, Simon Law Group, LLC.

Source references

• IRS - Estate Tax
• IRS - 2026 tax inflation adjustments
• IRS - Instructions for Form 706
• 26 CFR 20.2056(b)-7 - QTIP election regulation
• NJ Division of Taxation - Inheritance and Estate Tax

Frequently asked questions

Sources & authorities

• New Jersey Legislature - Official Statutes Downloads
• New Jersey Uniform Trust Code, P.L. 2015 c.276
• New Jersey Revised Durable Power of Attorney Act, P.L. 2000 c.109
• New Jersey Department of Health - Advance Directive Forms and FAQs
• New Jersey Division of Taxation - Inheritance and Estate Tax
• IRS - Estate Tax