Trusts are versatile tools that serve various purposes, from asset protection to tax minimization. At Surprenant & Beneski, P.C., our estate planning attorneys have an intricate knowledge of trusts and extensive experience crafting them to meet the specific needs of our diverse clients throughout Southeastern Massachusetts. One such trust that holds significant importance for married couples, particularly those with blended families, is the Qualified Terminable Interest Property (QTIP) Trust.
What Is a QTIP Trust?
A QTIP trust is an irrevocable trust commonly used to provide for a surviving spouse while preserving assets for the benefit of children or other designated beneficiaries. It allows the grantor to both ensure financial support for their spouse and control the ultimate distribution of assets after their spouse passes, ensuring that the surviving spouse receives income from the trust throughout their lifetime.
Is a QTIP Trust Revocable or Irrevocable?
A QTIP trust is irrevocable, meaning that once established, the terms of the trust cannot be altered or revoked by the grantor. This ensures that assets are protected and distributed according to the grantor’s intentions.
How Will a QTIP Trust Affect My Taxes and Those of My Beneficiaries?
Estate tax considerations
Assets placed in a QTIP trust are not subject to estate tax upon the death of the first spouse, since they qualify for the unlimited marital deduction. However, they may be subject to estate tax upon the death of the surviving spouse.
Income tax implications
Income generated by the trust assets, however, does count as the surviving spouse’s income and is taxable. Nonetheless, our savvy attorneys are adept at planning your estate in such a way that your overall tax liability is minimized.
When planning an estate, it’s important to look at all tax implications to make certain that you are not creating savings in one tax (estate taxes, for example), but inadvertently causing more tax in another (income taxes or capital gains taxes, for example). At Surprenant & Beneski, we help you analyze your planning to make the most of your assets while accomplishing your most important goals.
What Are the Pros and Cons of a QTIP Trust?
Pros
For many of our clients, a QTIP trust solves problems that are emotional as well as financial by:
- Providing assets for a surviving spouse throughout their lifetime, regardless of circumstances like remarriage, during which time there are no other beneficiaries.
- Protecting assets for the chosen beneficiaries of the deceased spouse, most often the children of an earlier marriage, to whom the grantor wants to bequeath an inheritance.
- Enabling the grantor to maintain control of their assets into the next generation. This provides the grantor with the peace of mind of not having to choose between loved ones.
- Offering estate tax benefits through the unlimited marital deduction.
Cons
On the other hand, there are a few disadvantages to QTIP trusts, particularly for certain individuals and families. In some situations, the following can present as hurdles that make QTIP trusts undesirable:
- Assets in the trust may be subject to estate tax upon the death of the surviving spouse which, for high-net-worth estates, can be quite costly.
- The irrevocable nature of the trust limits flexibility if the terms or beneficiaries must be changed.
- QTIP trusts can give rise to conflicts related to tax strategy, investment decisions, and overall trust administration between the surviving spouse and remainder beneficiaries.
For this reason, it is important to consider the nature of familial relationships and the needs of your beneficiaries before creating a QTIP trust.
Interested in a QTIP Trust? Call Surprenant & Beneski Today!
Our experienced attorneys are well-positioned to assist you in creating a QTIP trust because:
- We have a long history of successfully establishing, reviewing, and helping to manage QTIP trusts.
- We frequently deal with the needs of blended families and understand the complicated challenges they face.
- We take a personalized approach to each of our clients, understanding that no two families, whatever their similarities, are identical.
- You can depend on us for exceptional service.
Contact us now. We consider the estate planning process a collaborative one, we will not only keep you informed, but listen carefully to all you have to say.