Each estate planning situation is unique, and there are various different solutions that can be implemented to match the circumstances in question. Trusts are often part of the equation. There is a type of trust called a QTIP trust that can be useful for those who are getting remarried after having children from a previous marriage. In this post we will provide some basic information about QTIP trusts. (The QTIP acronym stands for qualified terminable interest property.)
Estate Plan Updates
Before we get into the specifics about QTIP trusts, we should touch upon the value of estate plan updates. You should look at estate planning as a process that is ongoing. Your initial estate plan is going to reflect your life situation as it was at the time the plan was created. Things change over the years. Your estate plan is going to need revisions when significant life events take place.
One such event would be a change in marital status. If you were to get divorced, you are probably going to want to adjust your existing estate plan. Remarriage after divorce is another situation that would call for an estate plan revision.
Protecting the Interests of Your Children
You may have some estate planning concerns if you are getting remarried after having been divorced. How do you protect the interests of your children and simultaneously make sure that your spouse is provided for after you pass away? If you leave everything to your spouse, what would prevent your surviving spouse from disinheriting your children?
Your surviving spouse may have children entering the marriage as well. Plus, he or she could get remarried. Your children could ultimately get lost in the shuffle.
One way that you can account for this type of situation would be to create a premarital agreement before you enter the marriage. Once this agreement is in place, your own personal property would be clearly defined.
When you revise your estate plan you could create and fund a QTIP trust.
With this type of trust your surviving spouse would be the initial beneficiary. While the surviving spouse is still living, he or she can receive ongoing distributions from the earnings of the trust. You name a trustee to make these distributions.
When you are creating the trust you also name a successor beneficiary or beneficiaries. These beneficiaries would be your children if you are implementing the strategy to protect their interests. The surviving spouse does not have the power to change the beneficiaries.
After the death of the surviving spouse, the secondary beneficiaries assume ownership of the assets that remain in the qualified terminable interest property trust.
This is the primary benefit of QTIP trusts, but they can also provide estate tax advantages under certain circumstances.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.