Posted by & filed under Uncategorized.

One of the most common concerns about estate planning for married couples is to make sure the surviving spouse is well provided for. A second, sometimes competing, concern is to make sure that the couple can leave as much of their estate as possible to their children.

For residents of Youngstown who have these concerns, a Qualified Terminable Interest Trust (QTIP) trust can be a useful estate planning tool. If you are curious about the benefits of a QTIP trust, contact an experienced estate planning attorney at the Law Offices of John C. Grundy who can advise you about whether a QTIP trust is a good option for your estate.




What is a Qualified Terminable Interest Trust?


In general, a trust is an estate planning tool whereby a third party, called a trustee, holds assets on behalf of another person, called a beneficiary. Trusts are often created in a will, although this is not a requirement. At death, the legal title to the trust property passes to the trustee. However, the equitable title passes to the trust beneficiary or beneficiaries.


A QTIP trust is a special kind of trust that allows a spouse to give a life estate in the trust assets to his or her spouse. For a QTIP trust that contains real estate or income-producing assets, this means that the surviving spouse is allowed to use the real estate or the income for his or her maintenance. The surviving spouse does not need to pay any taxes on the trust assets. When the surviving spouse dies, the trustee must deliver the assets of the QTIP trust to a named beneficiary. In order to create a QTIP trust, the executor of the will must elect QTIP status on the estate tax return.




Benefits of a QTIP Trust


A recent New York Times article points out that there are two primary purposes to a QTIP trust:


  1. To leave the bulk of an estate to someone other than a spouse; and
  2. To take full advantage of the unlimited marital estate tax deduction.


In Ohio, it is not uncommon for a spouse to have children from a former marriage. In some instances, both spouses may have children who are not the child of the other spouse. It is also not uncommon for stepchildren to have a strained relationship with their stepparents after the death of their parent, sometimes referred to as the Cinderella effect.


QTIP trusts are particularly useful in these types of situations, because a parent can guarantee that their children will eventually receive a share of their estate, even if those children are at odds with their surviving spouse. In many cases, both spouses will set up a QTIP trust so that whichever spouse dies first can be sure that, no matter what happens, their descendants will be provided for. In this sense, QTIP trusts provide certainty and control.


A QTIP trust can also be a useful tool for people in Youngstown to defer the estate tax. QTIP trusts qualify for the unlimited marital estate tax deduction, so no taxes are paid on the trust assets at the death of the first spouse, so long as the surviving spouse is a U.S. citizen. At the death of the second spouse, estate taxes will be due on all of that spouse’s property, including the assets in the QTIP trust. However, deferring the estate tax can help to ensure that the surviving spouse is well provided for.