When you sit down to create or revise your estate plan you may decide to include a trust agreement in your overall plan. Among the many benefits of including a trust is that trusts have evolved to the point where there seems to be a specialized trust for just about every estate planning goal or objective. A QTIP trust, for example, is an excellent way to provide for a second spouse while still protecting and reserving assets for your children.
All trusts share the same basic elements – a trustor or maker (you), a trustee to manage the trust, a beneficiary who will benefit from the trust, trust terms that dictate how the trust assets will be handled and distributed, and assets to fund the trust. A QTIP trust allows you to fund the trust will assets that will then be used to provide for your spouse but that will eventually be distributed to your children.
Estate planning can become complicated if you have children from a previous relationship but are now re-married. You undoubtedly want to provide for your current spouse without taking away assets that are ultimately meant for your children. If you gift those assets directly to your spouse you must then rely on your spouse to gift them to your children when he/she dies. Even if your spouse has the best of intentions of passing those assets down upon death, the assets could be lost, depleted, or spent by the time of your spouse’s death, meaning your children will receive nothing.
A QTIP trust, however, can provide a solution. A QTIP trust works by giving your spouse a “life estate” in trust assets but not transferring full ownership of the trust assets to your spouse. Instead, full ownership is only passed to your children upon the death of your spouse. A “life estate” means your spouse will receive the income produced by the assets or the enjoyment and use of the asset in the case of real property. Actual title of the asset, however, never passes to your spouse.
Another benefit to a QTIP trust is that gift and estate taxes that would otherwise be due on your estate assets are deferred until the death of your spouse. This alone can be incentive to create a QTIP trust.
If you would like to know more about QTIP trusts, consult with your Texas estate planning attorney.
Stephen A. Mendel, Estate Planning Attorney
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