Creating a successful estate plan often requires you to make use of a wide range of inter-related estate planning tools and documents. Moreover, as your estate and your family grow, your estate plan will likely need to grow as well. If you divorce and remarry, for example, you may now need to protect both your new spouse and your children from your previous marriage. One popular way to do that is to make use of a specialized type of trust known as a Qualified Terminable Interest Property, or QTIP, trust. If you are considering the use of a QTIP in your estate plan you will need to gain a better understanding of the QTIP trust requirements.
Marriage, Divorce, and the Blended Family
You have probably heard the statistics – approximately 50 percent of all first marriages end in divorce. Of those marriages that end in divorce, about the same percentage (50 percent) of the spouses enter into a second, or subsequent, marriage. If you are part of a blended family, you are likely familiar with the challenges of blending two families into one. Sometimes, the passage of time brings harmony to the family; however, in other cases, time only exacerbates the problem. The death of one spouse can bring everything to a boil and may even lead to bitter and costly litigation. A well thought out estate plan can go a long way toward preventing contentious litigation after your death if you are part of a blended family. If you are concerned about providing for your current spouse without putting assets intended for your children from a previous marriage at risk a QTIP trust may be the solution.
Why Might a QTIP Trust Be Necessary?
During your first marriage, you probably created reciprocal estate plans. You left all your assets to your spouse with the understanding that he/she would then pass those assets on down to your children upon death and your spouse did the same. Now that you are remarried, however, that strategy no longer works. The dilemma you now face is that you likely 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. Fortunately, there is a way to both provide for your current spouse and protect assets earmarked for your children – by creating a QTIP trust.
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 actually gifted to your current 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.
Contact Harrison Trust Attorneys
Please feel free to download our FREE estate planning worksheet. If you have additional questions or concerns regarding the QTIP trust requirements, contact the Harrison trust attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.