QTIPs allow you to make your assets available to your surviving spouse and yet still allow you to control the disposition of the assets upon the second death.
The unlimited marital deduction is often used to reduce taxes at first death. By using the unlimited marital deduction, assets are placed into the estate of the survivor, along with control of the ultimate disposition of those assets.
For many couples, this is not an issue. But for some people, the disposition of the assets upon the second death could be a sensitive issue. Consider a marriage where one spouse is in a second marriage and has children from both the second marriage and the prior marriage. If the first to die is the individual with two families, and he/she leaves all assets to the surviving spouse via the unlimited marital deduction, the surviving spouse may then leave all assets at his/her death to the second family and disinherit the first family. A QTIP solves this dilemma.
Mechanics of a QTIP
Upon the first death, selected assets are contributed to a QTIP trust. QTIP assets qualify for the unlimited marital deduction, and thus create no estate tax at the first death. During life, the surviving spouse receives any income generated by the trust (trust assets must be income producing property). Upon the survivor’s death, the remaining trust assets are transferred to heirs according to the wishes of the first to die. Thus, the current spouse is not disinherited, and any chance of the first family being disinherited is removed.
Who Could Benefit?
Clients who may benefit from a QTIP trust include:
* Clients with prior marriages and who want to make sure certain assets are received by certain heirs
* Clients with infirm or elderly spouses
* Clients who fear that a surviving spouse may remarry (often a concern with spouses who are much younger)