Cleveland, Ohio Estate Planning and Elder Law Attorney offers the following:
The main benefit of a Qualified Terminable Interest Property Trust is being able to control your estate after your gone. In addition, there are several tax advantages for larger estates.
Each spouse can set up a QTIP trust, leaving assets to the other in trust. When the first spouse dies, the survivor gets what is called a “life estate” in the assets that are left to the QTIP trust—that is, the survivor is entitled to any income the assets produce, and in the case of real estate, to its use. Only the surviving spouse can be named as the life beneficiary. The survivor does not, however, have full ownership of the trust assets and cannot sell them or give them away.
In order to qualify for the marital exemption, the spouse must receive all of the income from the trust and the Executor must make an election on the tax return. QTIP’s are very similar to family trusts, or bypass trusts. And in fact, many times you create a family trust in conjunction with a QTIP. The difference is that QTIP’s are more restrictive and are useful for those who are in second marriages.
There may also be several tax advantages. Here’s an example:
- Jim’s share of the marital estate is $12 million. He passes in 2016, leaving a spouse, Karen, and sons from a prior marriage. He had a revocable living trust, which becomes irrevocable upon his death.
- Upon Jim’s death, his trust sub-divided into an “A” and a “B” trust. $5.43 million is diverted to his “B” trust. Karen is the beneficiary, with limited access. Because this trust is under the federal estate tax limit, estate tax is $0.00. Over the next 20 years, because of robust growth, the “B” trust is now $17 million. Upon the Karen’s death, trust “B” passes to the son’s entirely estate tax free.
- The remaining $6.57 million in assets are diverted to the “A” trust. Karen again has restricted access, but can use these funds for her health, maintenance and support. When Karen has expenses she uses the “A” trust and saves the “B” trust only for dire necessities.
- Upon her death the “A” trust has been reduced (or eliminated) and the tax is minimal, if there is any at all. The remaining balance of the “A” trust goes to Jim’s sons.
There are many advantages to setting up a QTIP trust. Every estate plan is unique and its important to contact an elder law and estate planning attorney who can analyze your estate. Contact Cleveland, Ohio attorney Dan A. Baron at 216-276-4282 to learn more about QTIP or other trusts. Baron Law is a Cleveland, Ohio law firm.