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A QTIP trust operates in basically the same way as any other trust with some special terms designed to provide for your spouse while protecting your children’s inheritance. You will need to appoint a Trustee to oversee the administration of the trust and manage the trust assets. Assets transferred into the QTIP trust are not actually gifted to your current spouse when you die. Instead, your spouse receives income from the trust assets but cannot withdraw the principal from the trust nor can he or she decide on the ultimate disposition of the trust assets. In the case of real property, your surviving spouse may also receive a “life estate” in the property, meaning that he or she may remain in the home until death, but will never own the property outright. When your surviving spouse dies all assets held in the trust are then transferred to the intended QTIP trust beneficiaries.
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If you decide to remarry following a divorce, you may find that additional changes need to be made to your estate plan. One common concern people have when they remarry is how to provide for a new spouse while still protecting assets meant for children from a previous marriage. Creating reciprocal estate plans, as you may have done in a first marriage, will not achieve the same goals in a second marriage.
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When it becomes apparent that divorce is inevitable, you should consult with your estate planning attorney to discuss what updates need to be made to your estate plan to reflect the impending divorce. Some changes may not be able to be made until after the divorce is final; however, your estate planning attorney can guide you through when and how to make changes. Important updates to your estate plan during or after a divorce may include:
- Change the Executor of your Will and the Trustee of a trust.
- Update the terms of your Will to reflect the fact that you are no longer married.
- Change beneficiary designations on life insurance policies, retirement accounts, financial accounts, and any other assets that include beneficiaries.
- Update advance directives and powers of attorney by appointing a new Agent.
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The key to protecting your separate property is to include it in your asset protection strategies within your estate plan. Often, this means transferring the assets into a trust to ensure that they are kept separate and not unintentionally co-mingled. If you own property prior to the marriage, you should take steps to protect it prior to the marriage occurring. If you inherit property during the marriage, or otherwise obtain property that you wish to be kept separate, it should be included in your asset protection strategies.
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In an equitable division state, the division of marital assets will be divided fairly, not necessarily equally. Only assets that are considered marital assets are divided when a couple divorces. Property that is considered separate property remains the property of the original owner. Separate property usually refers to assets owned by a party prior to the marriage or inherited by a party during the marriage if the asset was not converted into a marital asset by co-mingling the asset. If you unintentionally co-mingle your separate assets, you could lose them in a divorce.
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Most married couples create estate plans that reflect their marital status. For instance, your spouse is likely the beneficiary of many assets and you probably hold some assets jointly. Some married couples have estate plans that are even more intertwined. You may also have appointed your spouse to important fiduciary and/or decision-making positions within your estate plan. All of that makes sense while you are married, particularly if you have children together; however, if you decide to end the marriage you should update your estate plan to reflect the change in your status as soon as possible after the divorce is final.
Contact Us
If you have additional questions, contact an experienced Indianapolis, Indiana elder law attorney at Frank & Kraft. by calling (317) 684-1100 to schedule your appointment today.
