The Mount Clemens trust lawyers at our firm have many tools at our disposal. There are countless different scenarios that can exist, and we have seen all of them over the years. Our experience allows us to immediately recommend the appropriate solution for each respective client that we counsel.
In many cases, they are very pleasantly surprised to find out that the perfect estate planning vehicle exists to satisfy objectives that seemed complicated to them. With this in mind, let’s look at the estate planning device called the qualified terminable interest property (QTIP) trust.
Satisfy All Responsibilities
If you have children from a previous marriage, and you decide that you are going to remarry, there are naturally going to be some estate planning concerns. This is especially true if you are older than your prospective new spouse and you have a significant store of financial resources. On the one hand, you want to make sure that your spouse is comfortable if you die first. On the other hand, you also have to protect the inheritances that you would like to leave to your children.
This can often be accomplished through the utilization of the estate planning device called a qualified terminable interest property trust. The way that it works is you convey assets into the trust, and your spouse would be the life beneficiary. You would make your children the final beneficiaries of the QTIP trust.
When you are establishing the trust, you would also name a trustee. This could be an individual that is known to you, or you could use a professional fiduciary like the trust section of a bank or a trust company.
Assuming you were to predecease your spouse, he or she would be able to utilize property that was conveyed into the qualified terminable interest property trust. For example, if there is a home, or multiple homes in the trust, your spouse could reside in the property or properties. Per the instructions that you leave behind in the trust agreement, the trustee could also distribute the earnings from income-producing trust assets to your surviving spouse.
After the passing of the life beneficiary, your children would inherit the assets that are contained within the qualified terminable interest property trust. As you can see, this strategy can provide the best of both worlds, and there is another potential advantage to be gained through the creation of a QTIP trust.
There is a federal estate tax in the United States, and at the present time, it is applicable on asset transfers that exceed $11.2 million. It carries a maximum rate of 40 percent, so it can take a rather severe bite out of your legacy. The estate tax can be applied on transfers to anyone other than your spouse, assuming you are married to an American citizen. There is an estate tax marital deduction that allows for unlimited asset transfers between spouses.
Because of this marital deduction, if you convey assets that would otherwise be subject to the estate tax into a qualified terminable interest property trust, there would be no tax responsibility immediately after your passing. It would be deferred until the final beneficiaries inherit the assets after the death of your spouse.
While we are on the subject, if you are married to someone who is a citizen of another country, all is not lost when it comes to accomplishing the goals that can be satisfied by a QTIP trust. There is another legal device called a qualified domestic trust. You could convey assets into this type of trust, and name your noncitizen spouse as the life beneficiary. Once again, your children would be the final beneficiaries.
The same situation would exist during the life of your surviving spouse if you pass away first. He or she could utilize property in the trust and receive income from the earnings of the trust without facing estate tax exposure. It would even be possible for some of the principal to be distributed to the life beneficiary if the Internal Revenue Service was to grant a hardship exception. After the death of the first beneficiary, your children would inherit the remainder in the trust, and the estate tax would be applicable at that time.
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Our Mount Clemens trust lawyers go the extra mile to provide tools that help people learn about the importance of estate planning and the different steps that you can take to provide for your loved ones. We constantly update this blog with new information, and there are other resources that you can find on this website if you poke around.
One of them is our estate planning worksheet, and you can download it right now if you visit this page. And if you would prefer to reach out directly, you can send us a message through our contact page or give us a call at 586-493-7661.