When most of us think of QTIPs we may think of cleaning in small spaces. When an estate planning professional thinks of QTIPs he or she would be thinking of a qualified terminable interest property trust.
A QTIP is a special type of trust that is highly useful during estate planning, particularly for the blended family with children from previous marriages. With an uncertain gift tax situation looming at the end of the year, a QTIP trust could be just the thing a blended family needs.
A QTIP trust works in two primary ways.
- The estate is placed in the QTIP trust, so that it can be left to someone other than the current spouse. An example would be that the adult children from a previous marriage could be named in a QTIP trust.
- The QTIP trust provides for the surviving spouse while it takes advantage of the unlimited marital deduction in estate tax law.
As a practical matter, the way that it is described as working is that the surviving spouse receives all of the income from the trust every year. When the surviving spouse dies, then the assets in the trust would go to the children from the first marriage. A QTIP trust would be a way for a person with assets in excess of $1 million to take care of the new spouse as well as the children from the previous marriage.
The benefits should be apparent. The new spouse can’t run away with the inheritance, and the children can’t leave the new spouse without a penny from the estate. For many blended families it should be a classic win-win financial tool.
As with any financial estate planning tool, whether or not it is appropriate depends upon the unique situation of each individual.
Source: The New York Times, “Yours, Hers, and the Kids’: Estate Planning After Remarrying,” Charles DeLuente, Oct. 19, 2012
- Our Los Angeles law firm represents individuals with a full range of estate planning needs including powers of attorney, wills, QTIP trusts, gifts and long-term care issues.