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What is a QTIP Trust?

A QTIP trust, or Qualified Terminable Interest Property trust, is a type of irrevocable trust that is often recommended for blended families. A QTIP trust provides security for your surviving spouse as well as any children from a previous marriage. In most cases, the QTIP trust is created by the wealthier spouse or the spouse with the most assets. When the trust’s creator (also called the grantor) passes away, the surviving spouse will assume a “life estate” in the trust’s assets. The life estate allows the spouse to receive income from the trust but does not allow them to sell or transfer assets.

When the surviving spouse passes away, the assets in the trust are passed to the final beneficiaries, who are typically the children from the grantor’s prior relationship. When creating a QTIP trust, you must name beneficiaries as well as a trustee to manage the assets in the trust. This could be a spouse, an adult child, a close friend, or a third party. If you are part of a blended family and would like to learn more about QTIP trusts, contact our law office today for a free consultation by calling 510-901-5375.

What Are the Benefits of a QTIP Trust?

The main benefit of a QTIP trust is ensuring that your children from a previous marriage are protected even after you remarry. In traditional estate planning, spouses often leave all their assets to their surviving spouse. However, if a parent passes away and leaves all their assets to their second spouse, no rules specify that the spouse must distribute those assets to any children from a previous marriage. In this scenario, the second spouse could leave all of their assets to their own children without allocating anything to the children from a previous marriage.

After establishing a QTIP trust, your surviving spouse cannot change the beneficiaries or sell or give away any property they receive. Your children, or the ultimate beneficiaries you name, will receive the assets in the trust, and you won’t have to worry about them becoming disinherited in the future.

Additionally, a QTIP trust provides income and financial security for your surviving spouse for the rest of their life after you pass. Your spouse will not have to worry about their own finances if you are the main breadwinner of the family. Similarly, because this trust functions as marital payment, it qualifies for the marital deduction and can lower your tax liability.

Does a QTIP Trust Impact Estate Taxes?

Because a QTIP trust is designed to give benefits to your surviving spouse, it qualifies for both the unlimited marital deduction plus the gift and estate tax exemption. The assets in a QTIP trust cannot be taxed after your death by the unlimited marital deduction. After your surviving spouse passes away, the assets are subject to federal estate tax. However, if the assets in the trust are within the gift and estate tax exemption, they will likely not be taxed.

While these exemptions exist for now, estate tax laws are subject to change and could adjust while your QTIP trust is still active. Fortunately, QTIP trusts are made to be flexible. If your family’s situation or estate tax laws have changed at the time of your death, the executor of your will can decide not to implement a QTIP trust if that makes the most financial sense. The executor can also make a partial QTIP election, meaning the QTIP is only elected on a portion of the estate. Once the election is made, it is irrevocable. If you are concerned about the implications of a QTIP trust on your estate taxes, contact our firm today. We will review your current estate plan and your financial goals to determine if it is the right decision for you.

Is a QTIP Trust Right for My Family?

If you have children from a previous marriage and have gotten remarried since then, a QTIP trust is an excellent way to pass on assets to your children without relying on your surviving spouse. Using a QTIP trust gives you and your kids the peace of mind that they will inherit their rightful assets after your death. Plus, it allocates assets to your surviving spouse to ensure they have financial security even after you are gone. If you are part of a blended family and have many significant assets that you’d like to pass on, a QTIP trust may be right for you. Contact our team of attorneys today to learn more.

What Other Estate Planning Tools Should Blended Families Use?

After you get divorced, it is essential to update your estate plan to reflect your new beneficiaries and heirs. Typical documents like wills, trusts, and powers of attorney must be changed to acknowledge your divorce and your new spouse, if applicable.

If you are in a blended family, be sure to take the following steps:

  • Update the terms of your will to reflect your new beneficiaries

  • Change the executor of your will and the trustee of your trust

  • Change beneficiary designations on life insurance policies, financial accounts, and retirement accounts

  • Update powers of attorney and advanced health directives

  • Update funeral and burial wishes to ensure your ex-spouse is not listed as a fiduciary or agent

How Can an Estate Planning Lawyer Help Me?

Being part of a blended family can make estate planning complicated. Leaving assets and money to your children from a previous marriage is important, but so is providing for your surviving spouse. An estate planning attorney on our team will review your estate plan and help you decide whether a QTIP trust is suitable for you and your family. To receive a free consultation, call The Singh Law Firm at 510-901-5375.


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