Is A QTIP Useful For More Than Earwax? (You’ll Be Surprised!)

Say the word “Q-tips?” and the first thought most will have is of the ubiquitous cotton swab by Unilever. A QTIP Trust (Qualified Terminable Interest Property Trust), however, is a special kind of trust which allows an individual to do two?very?important things with their assets. And, for those of you with children from a prior marriage and now remarried where you plan to provide financially after your death – you will want to pay especially close attention! Providing financially for loved ones who often have conflicting interests – and using the same planning tool to do so . . . “Imagine That?”!

What’s The Background?

According to recent statistics, four out of every ten families in the U.S. are blended families. In our planning with clients, we find increasingly that there are children in their lives from a prior spouse/relationship, but the client(s) are now married to someone new. While (hopefully) the relationships between these loved ones are warm, more often they are in conflict with one another . . .?especially financially. So, how is one to provide financial support and income to a new spouse, while not potentially disinheriting children from a prior relationship? As well, how can potential federal estate taxes or other death taxes be postponed and not payable at the death of the first spouse to die? A Gordian knot for many years, but now resolved by a special trust with the funny acronym of QTIP.

What Is It Exactly And How Does It Work?

It is an “irrevocable trust” (i.e., a trust that generally cannot be easily amended or terminated.) It is only available to married couples, and the surviving spouse must be a U.S. citizen. It is set up by an individual called a “grantor” to provide benefits to their spouse should they survive them. The surviving spouse is required to receive income for the rest of their life and the income stream cannot be turned off for any reason other than death – not for divorce, incapacity, or remarriage. The surviving spouse does not have a “general power of appointment” over the assets. That is, upon the death of the surviving spouse, the assets must be paid to the successor beneficiaries named in the QTIP Trust by the grantor.

This is a key point. Should a surviving spouse remarry, they may be... CONTINUE READING ON WLG WEBSITE