Charitable QTIP

Q-tips? have been around since 1923, well, the cotton variety anyway. Apparently you're not supposed to stick them in your ears, but I think that is how 95+% of them are used IRL (that's how the kids say "in real life" nowadays). I'm not sure what they're actually supposed to be used for if not that!??

The QTIP Trust, however, was created in 1981 and has been used with great effect to transfer assets, protect and provide a surviving spouse with income, and pass on assets to children or others. The power and utility of the QTIP trust is steeped in extensive case law and in everyday practice.

Probably more than 95% of QTIP trusts are used in the normal way, like all those Q-trips? in people's ears. A Charitable QTIP though, just might be the best and most interesting application.

Here is the goal: To reduce or even eliminate estate tax liability (remember that many states have estate tax thresholds far below the current federal threshold), preserve income for a surviving spouse, AND make a substantial charitable gift.

Let's see it in action:

• Donor A establishes a Testamentary Charitable Remainder Trust that satisfies the qualifications to meet the QTIP rules.
• At Donor A's passing, the trust is established, the income from which benefits Donor A's spouse. It can only be a spouse in this scenario.
• Donor A's estate takes a marital deduction for the full value of the trust, avoiding estate tax liability completely.
• The surviving spouse will benefit from the full amount of income generated by the trust AND the surviving spouse's estate will be able to take a charitable deduction for the remainder interest of the CRT.

The end result is this:

1. A married couple can remove any amount from their estate, avoiding estate tax because of the the unlimited marital deduction
2. The surviving spouse will benefit from an unlimited amount of income
3. The surviving spouse's estate will be able to take a charitable deduction for the remainder interest of the CRT
4. Your charity will receive the balance of trust assets, towards any agreed-upon designation or purpose.

While I talk a lot about Gift Planning NOT being just deferred gifts, Gift Planning does include creative structures for all giving, including deferred gifts. There are other uses and strategies for Testamentary CRT's as well, but this one highlights a unique approach to providing the income needed to maintain the quality of life for a surviving spouse while retaining the ability to support their charitable interests AND maximize traditional estate planning goals around minimizing taxes, creating liquidity, etc.

If you have donors who are concerned about minimizing estate tax liability but also want to ensure their surviving spouse has all the income they'll need, consider this strategy. It is highly effective and allows them to still include their charitable interests in their planning.

"I love it when a plan comes together" John "Hannibal" Smith - The A-Team