Estate planning for people who have married more than once and have children with people to whom they’re no longer wed can be challenging. Most people want to ensure that their spouse is provided for should they predecease them. However, they also want to leave some assets to their children and/or perhaps other family members or even a former husband or wife. That’s where a Qualified Terminable Interest Property (QTIP) trust can be a valuable estate planning tool.
A QTIP trust is typically set up to pay a surviving spouse from the income generated from the trust for the rest of their life. When that spouse dies, the remaining assets in the trust go to the beneficiaries, as designated by the grantor (the person who set up the trust). The grantor needs to name one or more trustees to manage the trust and ensure that the payments are made as designated.
This type of trust can help minimize squabbling between a person’s widow or widower and their children from previous marriages or relationships. It lets people leave the bulk of their estate to their surviving spouse while preventing assets from being left solely in their hands to distribute (or not) to stepchildren, siblings or favorite charities of the deceased as they choose.
It has other important advantages as well. For example, the surviving spouse doesn’t pay estate tax on the assets in the trust. No estate taxes are assessed until that spouse has died.
Further, a QTIP trust provides “creditor and predator protection,” as one attorney put it. Creditors can’t make a claim to money in the trust for repayment of debts. Neither can a future spouse, if the surviving spouse remarries. That’s why even people who aren’t in a second or subsequent marriage may want to consider this type of trust.
A QTIP trust is just one of many estate planning tools that people can use to ensure that their loved ones are provided for, that they minimize the tax burden on their heirs and beneficiaries and that they have control over the legacy they leave. An experienced estate planning attorney can help you determine which tools can best accomplish your goals.