Estate planning for couples in a second or later marriage who have disproportionate estates can be tricky. One solution for allowing the well-to-do spouse to maintain control of their assets but keep their other half happy is the Lifetime QTIP Trust.
In the estate planning world a “QTIP Trust” is a type of trust that allows a wealthier spouse to transfer an unrestricted amount of assets into trust for the benefit of their less wealthy spouse free from estate and gift taxes.
Typically married couples would make use of a QTIP Trust after death under the “AB Trust” strategy: After the first spouse dies the “B Trust” holds an amount equal to the federal estate tax exemption (currently $5.45 million in 2016) and the “A Trust” holds the excess. Under this strategy the “A Trust” is in fact a “QTIP Trust” which qualifies for the unlimited marital deduction, meaning that property passing into the trust will not be subject to estate taxes until the surviving spouse dies.
But what if instead of creating and funding the QTIP Trust after death, the wealthy spouse creates and funds the QTIP Trust for their spouse’s benefit with tax free gifts while the wealthy spouse is alive? This is the “Lifetime QTIP Trust” must meet the following criteria to qualify for the unlimited marital deduction:
Outright gifts to your spouse during life or after death lead to total loss of control. If you and your spouse have lopsided estates and families from prior marriages the problem is exacerbated by the difference in your wealth – while the well-to-do spouse will be just fine if the less wealthy spouse dies first, the opposite is not true. If you and your spouse are in this situation, a Lifetime QTIP Trust offers the following benefits:
As with other types of estate planning, Lifetime QTIP Trusts are not “one size fits all” and must be specifically tailored to each couple’s unique family dynamics and financial situation. Please contact us if you think you and your spouse fit the Lifetime QTIP Trust profile and we will help you determine what will work best for your family.
Father, husband, entrepreneur, and owner of a trivia filled brain. I help families and individuals plan for the unexpected and end of life. Schedule a Complimentary Strategy Session to chat with me, get answers to your questions, and find out about your Estate Plan options.
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