QTIP Trusts: Estate planning in second or third marriages
A QTIP, which stands for a qualified terminable interest property trust, has two purposes. The first is to leave the majority of an estate to a person other than one’s spouse, for instance to leave an estate to children from a previous marriage. Secondly, QTIPs allow people to fully make the most of the unlimited marital deduction in estate tax law.
Trusts and estates lawyers, explains that a QTIP allows the creator of the trust to “know where property is going after the death of the spouse. There is almost always concern about kids of a first marriage,” reports CNBC.
A QTIP trust could allow wealthy individuals to satisfy a second spouse and children from an earlier marriage at the same time. Tax law requires that the surviving spouse receives all the income from this type of trust each year. A QTIP trust offers lifetime income for a hypothetical spouse and later gives the assets to the children of the trust’s creator. Those who set up QTIP trusts are usually in their second or third marriages. However, the trusts can also be used in an intact family. The trust can help smooth the process of making tough financial decisions in an intact family by creating solid inheritance arrangements.
Estate planning lawyers believes that allocating assets in a QTIP trust rather than solely to a surviving spouse offers creditor and predator protection. In a QTIP trust, estate taxes are suspended when the surviving spouse is not set to receive the majority of the other spouse’s assets. Estate taxes are not due until the surviving spouse is deceased. This protects the ultimate beneficiaries from having to pay estate taxes as soon as the trust’s creator dies. A QTIP trust is not useful for unmarried individuals since it utilizes the estate tax marital deduction.
If you need help drafting your will or trust, an estate planning attorney can assist you in the process and ensure that your financial and familial interests are protected.