You can have several different goals for your estate plan but that can sometimes get a little bit tricky. Complexities can arise when you have children from a previous marriage and you get married again. On the one hand, you want to make sure that your new spouse is provided for after your death. On the other hand, you probably want to take care of your children as well. Our Ashland trust attorney wants to tell you about a QTIP trust and how it can improve your estate plan.
What Type of Trust is a QTIP Trust?
As our Ashland trust attorney can explain, a QTIP Trust is a type of irrevocable trust that is used most often to leave assets to your surviving spouse and then to your children after the death of your surviving spouse. Until the death of the second spouse, those assets will stay in the trust. A QTIP trust will allow one spouse to leave a life estate in certain property to the other spouse, without being subject to the federal gift tax. The only limitation is that the recipient spouse must have a right to the income of the trust and no one can give the principal to anyone other than the surviving spouse during the surviving spouse’s lifetime.
Who Should Consider a QTIP Trust and Why?
As much as you may love and trust your new spouse, you never know what the future has in store for you. It is possible that he or she could remarry after your passing, and there are also no guarantees about the relationship after your death between your spouse and your children from your previous marriage. So if you leave your entire estate to your spouse, you would have no control over what decisions he or she makes in the future.
With a Qualified Terminable Interest Property trust, you arrange for your spouse to receive income from the trust for the rest of his or her life. However, you decide who will ultimately inherit the resources that you convey into the trust when you are drawing up the trust agreement. You can make your children the secondary beneficiaries to make sure they receive their inheritance after your surviving spouse dies.
Understanding the Similarities of Irrevocable and Revocable Trusts
QTIP trusts must be irrevocable to work properly. Irrevocable and revocable trusts share many characteristics relating to the basic structure of the trusts and their fundamental benefits. Irrevocable and revocable trusts both require a grantor who creates the trust and is also responsible for providing the assets that fund the trust.
Both types of trusts require someone designated to serve as the trustee. The trustee is the person who is responsible for managing the trust and its property, preserving the value of those assets, and distributing them to the named beneficiaries as instructed by the terms of the trust.
How Irrevocable and Revocable Trusts are Different
The primary difference involves the ability or inability to revoke the trust once it has been created. With a revocable trust, it can be revoked or changed by the person who made it at any time while that person is still alive. That has some important effects on what the trust can accomplish, of course, and we’ll cover that in a bit.
The irrevocable trust, on the other hand, limits the ability to cancel or change it once it’s created. Those limits on changing the trust are part of what make an irrevocable trust useful. If you have questions, let our Ashland trust attorney help.
Understanding Some of the Benefits of Irrevocable Trusts
An irrevocable trust has its own benefits, some of which mirror those of the revocable variety. For instance, an irrevocable trust also keeps trust assets out of probate and preserves privacy. It also provides a reliable mechanism for transferring assets when you die. It does not, however, provide you with unfettered control over those assets. Once you give up ownership, you cannot neither reclaim that property by dissolving the trust and can only exercise control over the property as the trust permits.
Because the property is now beyond your reach and no longer part of your estate, creditors generally cannot gain access to them in lawsuits or other actions. The IRS no longer counts those assets as part of your estate either, and that can mean big reductions in your estate tax liability. If you need to apply for Medicaid benefits for nursing home care in the future, the assets in an irrevocable trust won’t be counted when your eligibility is calculated. If you have questions about any of these issues ask our Ashland trust attorney.
If you have questions regarding QTIP trusts or any other estate planning matters, please contact the experienced attorneys at The Potter Law Firm for a consultation. You can contact us either online or by calling us at (606) 324-5516 (Ashland, KY) or at (859) 372-6655 (Florence, KY), or for individuals in North Carolina, at (704) 944-3245 (Charlotte, NC and Huntersville, NC).