When to use a Q-Tip

When do you use a Q-Tip? We are not talking about the cotton swab but a Trust that can be used to accomplish your estate planning goals.

You might want to consider establishing a Q-Tip, or Qualified Terminable Interest Trust, if you are:

• Concerned about your spouse remarrying and your money benefiting the new spouse
• Worried your spouse will not pass on your money to your children
• Afraid that creditors will attach your surviving spouse’s property
• Concerned your spouse is unsophisticated about money

With a Q-Tip, a surviving spouse receives income from the Trust for life, but the principal is left to others, usually children. It therefore takes care of the concerns listed above.

Because the Trust qualifies for the unlimited marital deduction, estate taxes won’t be assessed at the first spouse’s death. After the second spouse’s death, the fund is distributed according to the first spouse’s wishes.

Some things to keep in mind:

• Consider how much discretion you want your spouse to have in making withdrawals from the Trust.
• Decide if you want your spouse to be able to change Trustees
• Explain your rationale in choice of beneficiaries
• Your spouse won’t be able to change the beneficiaries
• The Trust will not be subject to probate

A key element of a Q-Tip is that an executor makes the Q-Tip election at the time of the death of the first spouse after considering the tax and estate planning circumstances existing at that time. It is also possible for the executor to decline to elect the Q-Tip, or to make a partial Q-Tip election.

Contact an Estate Planning Attorney to see if a Trust is right for you.

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Paul A. Kraft, Estate Planning Attorney

Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning.

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.

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