Wednesday, September 30, 2009

QTIPs Remove Golddiggers from Your Heirs

With the common practice of marrying "trophy" wives (or husbands) by wealthy widow[er]s; determining the allocation of assets between the new spouse and the children of the previous spouse can be complicated and legally costly. A commonly-used technique to spell out the rights of potential beneficiaries of estates--and a technique which can save significantly on estate taxes if drawn up properly--is the qualified terminable investment trust (called QTIP for short). Like the bathroom product namesake, the document can clean up a lot of potential hassles. The QTIP generally provides investment income to the spouse for life (sometimes called a life interest) and may also include provisions to allow the spouse some level of access to principal for medical care or other necessities. All assets included in the trust qualify for the marital deduction (these assets are subject to taxation at the surviving spouse's death). Assets remaining at the death of the surviving spouse are allocated based on the initial decedant's will. The article provides some useful examples of how the trust could be used.

The QTIP is a useful tool for accountants with elderly or infirm clients with multiple marriages and children. Note that from a tax planning standpoint, some assets should be kept outside the QTIP to take full advantage of the unified credit for both the initial decedant AND the surviving spouse's death. Make SURE to talk to a qualified attorney (preferably one with both tax and trust expertise) before setting up a QTIP.


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