TaxTactics March 2014
Provide for your spouse, then your kids, with a QTIP trust

Do you want to provide for your spouse after your death but ensure that your children ultimately receive the inheritance you desire? Do you have concerns about transferring assets to your spouse outright? Do you also want to minimize gift and estate taxes? A great option to consider is a qualified terminable interest property, or “QTIP,” trust.
Accomplish multiple goals
If you want to preserve as much wealth as possible for your children but you leave property to your spouse outright, there’s no guarantee your objective will be met. This may be a concern if your spouse has poor money management skills.
Or perhaps you and your spouse don’t see eye to eye on how assets should be distributed to your children. For example, if you own a family business, you may want stock in that business to go only to the children who are active in the business, while your spouse might want each of your children to receive a share of the business.
In both of these situations, a properly designed QTIP trust may be the answer. It provides your spouse with income for life while protecting the trust principal and preserving it for your children. By appointing a qualified trustee, you can have greater confidence that the assets will be invested and managed wisely. And the trust documents will ensure that, upon your spouse’s death, the trust assets will be distributed to your children according to your wishes.
Avoid conflicts
Even in the most harmonious families, matters of inheritance can create conflicts. This may be the case if you’ve remarried and want to provide for your current spouse as well as for children from a previous marriage. A QTIP trust can help ease the tension by providing for your spouse while giving some assurances to your children that something will be left for them.
This strategy may backfire, however, if your spouse is considerably younger than you. In that case, your children may have to wait a long time to receive their interests in the trust — or they may effectively be disinherited altogether if your spouse survives them.
Tax advantages
Unlike most other trusts, the QTIP trust is eligible for the unlimited marital deduction. This deduction allows you to transfer any amount of property to your U.S. citizen spouse — either during your life or at death — free of gift and estate taxes.
Ordinarily, to qualify for the marital deduction, you must transfer property to your spouse outright or through a trust in which your spouse’s interest cannot terminate for any reason. A QTIP trust is an exception to this rule: It allows you to provide your spouse with a “terminable interest” in the trust while still qualifying for the marital deduction. The assets will, however, be included in your spouse’s taxable estate.
Harness the power
There are many ways you can provide for your spouse and children after you die. But harnessing the power of a QTIP might just be right for your situation. Make sure you work with a tax advisor and estate planning attorney. They can help you determine the best tools to ensure your estate is distributed as you desire while keeping taxes to a minimum. •
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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