When you are young, single, and just starting out in your career your estate plan will likely be rather simplistic. As your life becomes more complex, however, your estate plan will need to expand to reflect the increasingly complex nature of your life. For example, if you marry for a second (or subsequent) time and become part of a blended family, you may find the need to protect both your new spouse and any existing children within your estate plan. One estate planning tool that is often used in your situation is a specialized type of trust known as a Qualified Terminable Interest Property, or QTIP, trust. To help you learn more, a Beverly area trust attorney at DeBruyckere Law Offices explains the QTIP trust requirements.
Why Might a QTIP Trust Be Useful?
Most couples create reciprocal estate plans if neither spouse has children from a previous relationship. Reciprocal estate plans are structured so that the first spouse to die passes his/her entire estate to the other spouse with the understanding that the surviving spouse would then pass those assets on down to the couples’ children upon his/her death. That concept doesn’t always work though when marrying for a second time.
If you recently remarried, you undoubtedly want to provide for your current spouse while still setting aside assets for your children from your first marriage. You could leave everything to your current spouse and trust that he/she will leave those assets to your children upon death. Not only does that require a tremendous amount of trust in your spouse, but it also does not account for a whole host of intervening problems that could deplete the assets you intend to be passed down to your children. Your children could wind up with nothing. The good news is that a QTIP trust is specifically designed to address the problems encountered when a blended family is created.
QTIP Trust Requirements
A QTIP trust operates in basically the same way as any other trust with some special terms designed to provide for your spouse while protecting your children’s inheritance. You will need to appoint a Trustee to oversee the administration of the trust and to manage the trust assets. Assets transferred into the QTIP trust are not actually gifted to your current spouse when you die. Instead, your spouse receives income from the trust assets but cannot withdraw the principal from the trust nor can he or she decide on the ultimate disposition of the trust assets. In the case of real property, your surviving spouse may also receive a “life estate” in the property, meaning that he or she may remain in the home until death, but will never own the property outright. When your surviving spouse dies all assets held in the trust are then transferred to the intended QTIP trust beneficiaries, typically your children from a previous marriage.
Making the QTIP Election
Another advantage to using a QTIP trust is the flexibility it provides with regard to federal gift and estate taxes. The Executor of your estate can put some, or all, designated assets into the trust after your death. Assets that go into the trust are not taxed until the death of the surviving spouse. This can also be beneficial if the tax laws are not favorable at the time of your death. Your Executor must make a QTIP election on the tax return filed after your death and indicate which assets are to be transferred into the trust. This is one of the many reasons why you should work closely with an experienced trust attorney if you are considering the inclusion of a QTIP trust into your estate plan.
Contact a Beverly Area Trust Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions about how a QTIP trust works, or you wish to discuss including a QTIP trust in your estate plan, contact a Beverly area trust attorney at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.
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