QTIP Trusts |
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Like many married individuals, you may want your estate to provide for both your surviving spouse and your children. However, if you leave all your property to your spouse outright, it’s possible that your children won’t receive the assets you want them to have. A special kind of trust, called a qualified terminable interest property (QTIP) trust, is a very effective planning tool designed to provide a lifetime income for your surviving spouse and preserve assets for your children’s benefit no matter how marital or other family situations may change over the years.
Potential Tax Benefits
You also should not overlook the issue of estate taxes when you are planning your estate. While the federal estate tax has been repealed for 2010, estate taxes will still present a threat to large estates until then. And the estate tax will return in 2011 unless Congress acts to make the repeal permanent.
With a properly structured QTIP trust, your estate can take advantage of the federal estate-tax marital deduction for property that passes between spouses. Because of the deduction, the QTIP trust property will not be included in your taxable estate. Any estate taxes that may be due on the property will be delayed until your spouse’s death.
Your estate will be able to claim the marital deduction for the assets that pass to your QTIP trust provided that:
- Your spouse is entitled to all the income from the trust property, payable at least annually, for his or her life.
- No one has the power to transfer the trust property to anyone except your spouse during his or her life.
- Your executor (or personal representative) elects on your estate-tax return to have the trust property qualify for the deduction.
Combining your QTIP trust with a second trust — often referred to as a credit shelter trust — can help reduce the bite of estate taxes on your spouse’s estate. You can see from this example how this strategy works.
Three QTIP Trust Solutions
A QTIP trust can be used to resolve a variety of difficult issues.
Remarriage. If you have children from a prior marriage, can you be certain that your current spouse will respect your wishes regarding the disposition of your assets? Without proper planning, your children could lose out. With a QTIP trust, you can ensure that your children receive family heirlooms and whatever other property you want them to have.
Fairness. Does one of your children lack money management skills? If so, you may be concerned that frequent calls for financial help will result in your financially challenged child receiving more than his or her fair share of your estate. You would like to be certain that all of your beneficiaries receive what you intend them to receive. A QTIP trust can help you achieve this goal. Your spouse will receive a lifetime income, and when your spouse dies, your trust assets will be distributed exactly as you’ve instructed.
Asset Management. Some individuals have little experience or interest in financial matters. That inexperience may lead them to make unwise investment and spending decisions with the money left to them upon the deaths of their spouses. If this is a concern of yours, a QTIP trust managed by a professional asset manager can minimize your worries. This arrangement can ensure that your spouse will have sufficient income to live comfortably while the trust assets are managed in a prudent and professional manner.
A Skilled Trustee Is Essential
If you decide to create a QTIP trust, give careful thought to your choice of trustee. A skilled, professional trustee with experience in investment management and all the other aspects of trust administration can be crucial to the success of your trust.
Would you like to learn more about QTIP trusts? Take some time to discuss the details with your professional advisors. They can help you determine whether a QTIP trust would be appropriate for your personal situation.
This publication is an advertisement prepared by NPI for the use of the sender. It is not to be considered legal, accounting, tax, or investment advice. The information is general in nature and may or may not be appropriate to you. Before applying anything you read to your personal or business situation, you should seek professional advice.
Copyright © 2009 by NPI
FR2008-1230-0268/E
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