Creating a successful estate plan often requires you to make use of a wide range of inter-related estate planning tools and documents. Important events over the course of your life may also necessitate changes and revisions to your existing estate plan. For example, if you divorce and subsequently remarry, you may find yourself trying to figure out how to achieve two seemingly disparate estate planning goals – providing for your current spouse and protecting assets earmarked for your children from the previous marriage. Fortunately, a specialized type of trust known as a Qualified Terminable Interest Property, or QTIP trust may be able to help. A better understanding of the QTIP trust requirements may help you decide if one if including one in your estate plan is a wise idea.
Why Might You Need a QTIP Trust?
Given the unique nature of estate planning, only your estate planning attorney can tell you with certainty if a QTIP is right for your estate plan; however, understanding who typically benefits from the inclusion of a QTIP trust may be beneficial to learn. For example, a QTIP trust often works well for a Settlor who is part of a blended family. In the U.S., about half of all first marriages end in divorce and about half of those people go on to become part of a blended family at some point. If you are part of a blended family, you already understand the challenges that come with combining two families into one. A blended family can create estate planning challenges as well, starting with the seemingly disparate goals of providing for your current spouse in your estate plan while still protecting assets that are intended for your children from a previous marriage. If you find yourself facing just such a dilemma, you may benefit from the inclusion of a QTIP trust into your estate plan.
Estate Planning Challenges for the Blended Family
Couples often create reciprocal estate plans if neither spouse has previously been married. If this is what you did in your previous marriage, the concept was simple enough – you left all your assets to your spouse with the understanding that he/she would then pass those assets on down to your children upon death. Your spouse created the same estate plan. That simple strategy doesn’t work though once you divorce and remarry. Now, you may want to provide for your current spouse while still placing certain assets out of reach that are intended for your children from your first marriage. You could leave everything to your current spouse and trust that he/she will leave those assets to your children upon death. Along with requiring unwavering trust in your spouse, that strategy doesn’t even consider all of the ways in which those assets could be depleted or lost between the time of your death and the time your surviving spouse dies. Your children could wind up with nothing. A QTIP trust offers a way to both provide for your current spouse and protect assets earmarked for your children.
QTIP Trust Requirements
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 to 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, typically your children from a previous marriage.
Contact Lincolnshire Trust Attorneys
For additional information, please download our FREE estate planning worksheet. If you have additional questions or concerns about QTIP trust requirements, contact the experienced Lincolnshire trust attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.