If the client’s children have the insurance proceeds and the right to buy the business or real estate, then the life insurance proceeds used to purchase the assets can be used to fund the QTIP trust. A “general power of appointment” for this purpose is the power of the surviving spouse to name anyone as the beneficiary of the trust at the spouse’s death, including the spouse’s own estate (so that the trust property could be used to pay the spouse’s debts and then be distributed to the beneficiaries under the spouse’s will). It allows the testator to take advantage of the marital deduction, but also gives the testator the power to determine who will receive the remainder at the surviving spouse's death, usually testator's children. QTIP Trust Requirements The QTIP trust must state that all the income of the trust must be paid to the surviving spouse for his or her lifetime, and the following restrictions must be observed: Also, the surviving spouse must be a citizen of the United States. For that reason, the QTIP trust is often used in situations where there are multiple marriages and families. One of the most important aspects of estate planning is preparing for your animal companions' future—for the time when you are no longer there to care for them yourself. And the client does not need to lose the income of the trust if he or she survives the spouse because the client can be a beneficiary of the trust and receive the income for the rest of his or her lifetime. The QTIP Marital Trust is an attempt to balance the interests of the surviving spouse with the decedent's desires to provide for other beneficiaries. This should not be used for legal research but instead can be used to find solutions that will help you do legal research. When the testator wishes to give the power to determine the final disposition of the assets to the surviving spouse, however, a general power of appointment trust may be used. Choose from a broad listing of topics suited for law firms, corporate legal departments, and government entities. The Terminable Interest Problem The letters QTIP stand for qualified terminable interest property.

Individual courses and subscriptions available. Daniel B. Evans, J.D., received his law degree cum laude from the University of Pennsylvania and practices law in Wyndmoor, Pa., mainly in the areas of estate planning, estate and trust administration, and related tax planning for closely held businesses. At the client’s death, the trust could provide liquidity for the QTIP trust, either through loans or purchases of assets. A power of appointment trust can qualify for the marital deduction if two conditions are met: (1) the surviving spouse must be entitled to all of the income of the trust for life and (2) the surviving spouse must have a “general power of appointment” at death. (The probate estate of the surviving spouse is entitled to be reimbursed from the QTIP trust for any additional estate tax caused by the trust.). The marital deduction rule allows for deferrence of estate taxes, to death taxes on outright transfers of wealth and estate assets between spouses. Under a QTIP Trust, the surviving spouse need only be given all the income for life, which makes it similar to the traditional general power of appointment trust. Your estate plan represents your beliefs, compassion, and your legacy. He is a nationally known speaker on estate planning. He or she must be married as well, and the couple must qualify for the marital deduction rule. Qualified Terminable Interest Property (QTIP) Trust Basics The Qualified Terminable Interest Property (QTIP) Trust was a creation of ERTA-1981 pursuant to IRC § 2056(b)(7) which qualifies for the marital deduction, even if the surviving spouse is not given a general power of appointment during life or at death. The spouse must be entitled to receive all of the net income from the trust at least annually. QTIP Trust Obstacles For blended families, a common stumbling block to adopting a QTIP trust is the basic requirement that the surviving spouse be entitled to all of the trust income for his or her entire life, without qualification. The trustee can be given the discretion to distribute principal to the surviving spouse, usually for the health, maintenance and support of the surviving spouse (sometimes with the qualification that the support is to be in accordance with the surviving spouse’s “accustomed standard of living”). One traditional exception to the terminable interest rule is the “power of appointment” trust. With a general power of appointment trust, it is always possible that the surviving spouse could use the principal of this trust to finance a business of a second spouse or give the principal during life or after death to the second spouse or the children of the second spouse. For that reason, the QTIP trust is often used in situations where there are multiple marriages and families. The first spouse to die can specify who receives the property after the second death. Dan is a fellow of the American College of Trust and Estate Counsel, is active in the American, Pennsylvania and Philadelphia Bar Associations and has written and spoken extensively on estate planning and legal technology. RELATED LINKS: For more on QTIP trusts, see: Florida Will and Trust Forms Manual § 101.syn et seq. That is why the QTIP trust must be structured to distribute income, to show that the surviving spouse has a “qualified lifetime interest.”. The marital deduction ultimately ensures that the QTIP trust assets will not count towards the deceased spouse’s taxable estate. Through a Charitable IRA Rollover gift, you can help PETA can continue to create the opportunities that bring us toward a compassionate world for all. Stay up to date on the latest vegan trends and get breaking animal rights news delivered straight to your inbox! A QTIP trust is therefore particularly useful in second marriages because the client can provide for a spouse by putting assets in trust with the income going to the spouse, but can dictate that the assets go to the client’s children, and not the spouse’s children, after the death of the spouse. For blended families, a common stumbling block to adopting a QTIP trust is the basic requirement that the surviving spouse be entitled to all of the trust income for his or her entire life, without qualification. Additional fees may apply. Even if the client is willing to provide an income interest in theory, there may be practical problems if the assets passing into the QTIP trust will be undeveloped real estate, a family farm, a vacation home, stock of a closely held business or other assets that produce very little or no income.

A client can set up a trust for a spouse, and the trust can qualify for the federal estate tax marital deduction, even though the spouse has no control over the principal of the trust and the remaining principal will return to the client’s family (or other beneficiaries selected by the client) at the death of the spouse. Another advantage of a general power of appointment trust is that the surviving spouse may be permitted to make lifetime gifts to descendants, friends, or charities. Try it out for free. At the death of the surviving spouse, the trust assets are included in the gross estate of the surviving spouse for estate tax purposes, but the surviving spouse does not need to have any power over the property. But this restriction meant trust property would not qualify for the marital deduction. A QTIP trust can also be created during the client’s lifetime instead of at the client’s death, qualifying for the gift tax marital deduction instead of the estate tax marital deduction. QTIP Trust Requirements. We never considered the impact of these actions on the animals involved. Share this sample bequest language for PETA with your estate planning attorney, or use when filling out a beneficiary form. Under this general rule, a life estate does not qualify for the marital deduction, and in most cases, the only kind of interest that satisfies the terminable interest rule is outright ownership.

With a general power of appointment trust, it is always possible that the surviving spouse could use the principal of this trust to finance a business of a second spouse or give the principal during life or after death to the second spouse or the children of the second spouse. The letters QTIP stand for qualified terminable interest property. First, for the trust to be recognized and treated as a QTIP trust the grantor must be a U.S. citizen. Thus, the advantage of a QTIP Trust over a general power of appointment trust is that the testator can determine what happens to any principal remaining at the surviving spouse's death. The Qualified Terminable Interest Property (QTIP) Trust was a creation of ERTA-1981 pursuant to IRC § 2056(b)(7) which qualifies for the marital deduction, even if the surviving spouse is not given a general power of appointment during life or at death. The spouse must have the power to require that the trust produce a reasonable income, including the power to require that investments be sold and reinvested so as to produce a reasonable income. Creating a successful estate plan often requires you to make use of a wide range of inter-related estate planning tools and documents. Redefining trust income to be a unitrust distribution allows the trustees to carry out an investment policy that produces the best long-term yield regardless of whether the yield is ordinary income or capital gain.

and How to Build and Manage an Estates Practice, both published jointly by the Real Property, Probate and Trust Law and Law Practice Management Sections of the ABA. A QTIP trust, however, works a little differently. For more information, please contact Tim Enstice at 757-962-8213 or [email protected]. Current subscribers: You will continue to receive e-mail unless you explicitly opt out by clicking, People for the Ethical Treatment of Animals. This can save estate tax by using the unified credit exemption amount of the spouse to pass assets to the client’s family free of federal estate tax, even if the spouse should predecease the client. Even a deferral of estate tax can be valuable because, if the surviving spouse lives until the year 2010 (when the estate tax is scheduled to be repealed, unless Congress makes a change), the property in the surviving spouse’s estate could entirely avoid the federal estate tax. The QTIP Marital Trust is an attempt to balance the interests of the surviving spouse with the decedent's desires to provide for other beneficiaries.

The QTIP trust must state that all the income of the trust must be paid to the surviving spouse for his or her lifetime, and the following restrictions must be observed: No one (not even the surviving spouse) can have the power to distribute any principal from the trust during the spouse’s lifetime to anyone other than the spouse.