There are many different trust types available to use when estate planning. Each different type of trust serves a different purpose and has its own benefits. The value that you may find in the proper implementation of the right kind of trust to serve your own purposes can be substantial. This is part of the reason why it is so important to begin estate planning as soon as possible. With more time, you can explore the vast options available to you and your family. There is so many possibilities out there that many are not aware of. For instance, a Qualified Terminable Interest Property Trust (QTIP) trust is a great option for those people who have remarried but have children from a previous marriage.
Understanding a QTIP Trust
With a QTIP trust, the trust settlor, or “grantor,” has the ability to provide for their surviving spouse while still controlling the way trust assets are distributed once the surviving spouse has passed away. The grantor transfers ownership of certain assets to the trust. The trust invests the assets. When the settlor passes away, income generated from the trust is distributed to the surviving spouse in order to ensure the spouse has income to live on after his or her spouse passes away. The surviving spouse receives a monthly payment from the trust for the duration of his or her life.
The surviving spouse is receiving what is referred to as a “life estate” in the assets left in the QTIP trust. The surviving spouse does not, however, have full ownership of trust assets and has no right to sell them or otherwise give them away. When the surviving spouse dies, the trust assets are distributed to the final beneficiaries of the trust. This is why QTIP trusts are a popular option when a person remarries but has children from the previous marriage. The trust allows the settlor to provide for his or her subsequent spouse while still ensuring that his or her children from the previous marriage receive the assets held in the trust.
Another benefit of a QTIP trust is that the trust helps to limit death and gift taxes. Also, the QTIP property, which generates the funds distributed to the surviving spouse, qualifies for marital deductions. This means that the value of the property held in the trust is not taxable after the grantor’s death. The tax liability instead falls to the trust beneficiaries that receive the trust assets when the surviving spouse eventually passes away.
Trusts and Estates Attorney
Each family is different. There are so many family structures and dynamics at play that there really is no such thing as a one size fits all estate plan. At Monk Law, we want to hear about what is important to you and design an estate plan that puts those things first. Contact us today.