Qualified Terminable Interest Property Trust (QTIP)

Qualified Terminable Interest Property Trusts, or QTIPs, are a specialized type of Advanced Estate Planning tools that allow clients to increase the flexibility of their Estate Plans while maintaining the all-important marital deduction.

QTIP Trusts are especially good at easing concerns that many clients may have about either remarriage of the surviving spouse, or treatment of their children once they have passed away if they are in a blended family with children from prior marriages.

The Marital Deduction

To understand why QTIPs are beneficial to an Estate Plan, a brief explanation of the marital deduction is necessary. When clients leave property to others at death (or make gifts of property during their lifetimes in excess of the annual gift exemption), that gift or bequest is ordinarily subject to Federal Estate/Gift Tax if the amount given exceeds the current exemption amount (presently, $5.34 million).

This is not the case for property transferred between spouses, either during their lifetimes or after death: the unlimited marital deduction exempts any transfer of property between spouses from Federal Estate/Gift Tax.

Terminable Interest

This exemption, however, does not apply if the interest given to the spouse is a “terminable interest:” which is an interest which will terminate at some point, granting ownership to another person or entity. Reasons why a client may wish to include a terminable interest in an Estate Plan are broad: maybe that person’s spouse is in poor health, and it would not be a good idea to leave them a large sum of money outright. Perhaps the first spouse has specific wishes for the assets after their passing, and wants to ensure that it will to beneficiaries he designates. QTIPs are an exception to the rule barring terminable interests from receiving the deduction.

QTIPs balance the wishes of the first spouse and the maintenance of the survivor: the surviving spouse receives the income of the property in the QTIP for their lifetime, and once they pass away, it will go to a named beneficiary.

Protection for your loved ones

QTIP Trusts are especially good at easing concerns that many clients may have about either remarriage of the surviving spouse, or treatment of their children once they have passed away if they are in a blended family with children from prior marriages. Using terminable interests in a QTIP, the first spouse can guarantee that their children will benefit from the property, while still providing for the survivor.

The attorneys at Bezaire, Ledwitz & Borncamp know how to employ Advanced Estate Planning solutions like QTIPs through years of experience dealing with complex Estate matters.

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