Estate planning for a married couple with children is usually fairly simple. If you divorce and remarry though, estate planning becomes more complicated. With a blended family you need to protect your new spouse and your children from your previous marriage in your estate plan. One tool that is often used in an estate plan for a blended family is a specialized type of trust known as a Qualified Terminable Interest Property, or QTIP, trust. To better explain, the Long Island trust attorneys at Eghrari Wealth Training Firm discuss estate planning for the blended family.
Why Might a QTIP Trust Be Useful?
Most couples create reciprocal estate plans if neither spouse has children from a previous relationship. Reciprocal estate plans are structured so that the first spouse to die passes his/her entire estate to the other spouse, understanding that the surviving spouse would then pass those assets on o the children upon his/her death. That concept doesn’t work well, however, when marrying for a second time.
If you recently remarried, you undoubtedly want to provide for your current spouse while still setting aside assets for your children from your first marriage. You could leave everything to your current spouse and trust that he/she will leave those assets to your children upon death. Not only does that require a tremendous amount of trust in your spouse, but it also does not account for a whole host of intervening problems that could deplete the assets you intend to be passed down to your children. Your children could wind up with nothing. The good news is that a QTIP trust is specifically designed to address the problems encountered when a blended family is created.
QTIP Trust Requirements
A QTIP trust operates in basically the same way as any other trust with some special terms designed to provide for your spouse while protecting your children’s inheritance. You will need to appoint a Trustee to oversee the administration of the trust and to manage the trust assets. Assets transferred into the QTIP trust are not legally gifted to your spouse when you die. Instead, your spouse receives income from the trust assets but cannot withdraw the principal from the trust nor can he or she decide on the ultimate disposition of the trust assets. In the case of real property, your surviving spouse may also receive a “life estate” in the property, meaning that he or she may remain in the home until death, but will never own the property outright. When your surviving spouse dies all assets held in the trust are then transferred to the intended QTIP trust beneficiaries, typically your children from a previous marriage.
Making the QTIP Election
Another advantage to using a QTIP trust is the flexibility it provides regarding federal gift and estate taxes. The Executor of your estate can put some, or all, designated assets into the trust after your death. Assets that go into the trust are not taxed until the death of the surviving spouse. This can also be beneficial if the tax laws are not favorable at the time of your death. Your Executor must make a QTIP election on the tax return filed after your death and indicate which assets are to be transferred into the trust. This is one of the many reasons why you should work closely with an experienced trust attorney if you are considering the inclusion of a QTIP trust into your estate plan.
Contact Long Island Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about estate planning for the blended family, contact the Long Island trust attorneys at Eghrari Wealth Training Firm by calling us at 631-265-0599 to schedule your appointment.
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