October 26, 2023 •HoganTaylor
You might have heard about a QTIP trust and wondered, "What's with that name?" Well, it may sound strange, but a QTIP trust can be a game-changer in estate planning, especially if you're in a second marriage or have a complex family situation. Let's break it down. The acronym "QTIP" stands for "Qualified Terminable Interest Property." But, don't let the jargon scare you - it's all about securing your family's financial future while keeping things flexible.
No Rush to Pay Estate Taxes
One of the fantastic things about a QTIP trust is that it gives you some breathing room when it comes to estate taxes. Any federal estate tax that might be lurking around your QTIP trust assets? It doesn't come knocking until your surviving spouse passes away. That's when their gift and estate tax exemption can shield what's left in the trust from the taxman. So, your legacy stays intact.
How a QTIP Trust Works
Picture this: You're the wealthier spouse, and you decide to set up a QTIP trust. When you pass away, your surviving spouse gets a "life estate" in the trust's assets. What does that mean? Well, it gives them the right to receive income from the trust, which is great. But, here's the twist - they can't sell or transfer the assets. Those are safe and sound in the trust. Once your surviving spouse joins you in the great beyond, those assets go to the final beneficiaries, like your children from a previous marriage.
The Choice is Yours
You've got choices when it comes to who gets what and who's in charge. You can decide who the beneficiaries of the QTIP trust will be, and also who'll manage it as the trustee. It could be your spouse, an adult child, a close friend, or even a pro. It's all about what works best for your unique situation.
Estate Taxes Don't Stand a Chance
The beauty of a QTIP trust is that it combines the best of both worlds - the unlimited marital deduction and the gift and estate tax exemption. When you create this trust and provide a life estate for your spouse, you're in the clear when it comes to estate taxes, thanks to the unlimited marital deduction. However, after your spouse passes, the assets in the QTIP trust are up for grabs by the federal estate tax. But here's the good news: with the generous $12.92 million gift and estate tax exemption for 2023, most estates can breathe easy without worrying about tax liabilities.
Rolling with the Changes
Life is unpredictable, and so are estate tax laws. But don't worry; a QTIP trust is flexible. If your family's situation or the tax laws change, you're not locked in. Your will's executor can choose not to go ahead with a QTIP trust if it doesn't make sense anymore. Or, they can make a QTIP trust election on a federal estate tax return. You've got options. Just remember, once the election is made and the return is filed, there's no turning back.
Is a QTIP Trust Right for You?
If you want to ensure your spouse is cared for after your passing and also guarantee that your children receive their rightful inheritance, a QTIP trust is worth considering. Get in touch with us, and we'll help you figure out if it's the right fit for your unique estate plan. Your legacy is essential, and a QTIP trust can help you protect it for generations to come.
HoganTaylor Estate Planning Services
HoganTaylor estate planning professionals leverage their tax and business advisory expertise to help individuals accomplish goals and minimize tax burden. If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Estate Planning services, please contact Dan Bomhoff, Estate Planning Lead.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
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