Understanding the QTIP Trust

When drafting a comprehensive estate plan with an estate planning lawyer, a qualified terminable interest property (QTIP) trust may be useful for providing financial protection for your surviving spouse and family after you pass away. A Florida estate planning lawyer from Kramer Green can help you determine whether a QTIP trust is the right type of estate planning vehicle to meet your needs.

Understanding the QTIP Trust

A QTIP trust allows you to maintain control over how your assets are distributed after you pass away, both to your surviving spouse and to the trust beneficiaries, while still avoiding the federal estate tax on the first death. A QTIP trust is irrevocable.  26 U.S. Code Sec. 26 U.S. Code Sec. 2523(f) authorizes QTIP trusts.

Under the terms of a QTIP trust, your surviving spouse will receive income (and sometimes all or a portion of the principal) from the assets held in the trust during the remainder of his or her lifetime, according to the conditions you have set up in the trust. The remaining trust assets at the time of your spouse’s death will go to the beneficiaries you designated in the trust. The surviving spouse may be given the right to override the disposition.

Benefits of the QTIP Trust

The QTIP trust is only right for some situations, but it has some benefits that may be appropriate and useful, depending on your circumstances.

Preventing Undue Influence and Poor Financial Decisions

One major benefit of the QTIP trust is its irrevocable nature. This trust feature allows you to have sole control over how your assets are distributed both to your surviving spouse and to the other beneficiary of the trust that you designate. However, your surviving spouse must receive the income from the trust during his or her lifetime. Your surviving spouse will be unable to voluntarily change the terms of the trust or be influenced by others to change them, unless you decide otherwise. Your ability to determine the ultimate distribution of your assets can save your spouse from making poor financial decisions in the future.

The irrevocability of a QTIP trust, along with the fact that a QTIP trust should have an independent or co-trustee to oversee the trust, also can be useful when a surviving spouse is elderly or incapacitated. The oversight of the trustee and the inability of the spouse to change the trust terms helps ensure that all its terms are carried out as you intended.

Avoiding Federal Estate Tax

QTIP trusts also can provide critical tax benefits, especially for very large estates. As a result, couples whose assets are greater than the combined federal gift and estate tax exemption will see the greatest tax benefits. However, although the current federal estate tax exemption is very high ($12.06 million for 2022, increasing to $12.92 million for 2023), it is subject to change in the future, which could potentially expand the tax benefits for an increasing number of estates However, it should be noted that the assets remaining in the QTIP Trust at the second death are includible in the second to die spouse’s gross estate for Federal Estate Tax purposes.

Because of portability (the tacking of unused Federal Exemption from the first to die to the surviving spouse), the use of QTIP Trusts may not be he best strategy.

Providing for Both New Spouses and Children from Previous Relationships

A second marriage, particularly in which an individual has children from a previous relationship, can be an ideal situation for a QTIP trust. If the individual passes away, the QTIP trust ensures that the surviving spouse has income during their lifetime. However, the QTIP trust also can preserve the principal of the assets for the individual’s children, to be distributed to them after the surviving spouse’s death.

Look to Kramer Green for Help with Your Estate Planning Matter

The Florida estate planning attorneys of Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. are prepared to assist you and your family through every step of creating the estate plan that best meets the needs of you and your family. We know how to most effectively and efficiently draft an estate plan that achieves your goals, protects your heirs, and avoids the time and cost involved in probate proceedings.

Our objective is to guide you through the complex legal matters that estate planning can involve. In addition, we want to help you lessen the burden on the surviving loved ones you will leave behind. Contact our office today at (954) 966-2112 or reach out to us online to schedule a time to discuss your legal estate planning issues with our attorneys.

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