estate planning qtip
QTIP Trust & Pre-Nup Can Cover All Bases
There are those who equate the concept of the premarital agreement with the undermining of true romance, but this impression is now beginning to soften. The truth is that if all marital unions were first marriages taking place between two young adults with no children and no significant personal assets a prenuptial agreement may indeed seem unnecessary. But these days, marriage is simply not the same institution that it was in years gone by.
Statistics tell us that nearly half of all first marriages end in divorce, and three out of four of these people subsequently remarry. In most cases at least one of them had children from a previous marriage or marriages.
To tack on another relevant fact, the majority of second and third marriages do not last. So when you digest the odds, entering into a remarriage without a prenuptial agreement in place may be irresponsible.
Even if you are certain that “this is the one,” how can you be sure that your new spouse will take care of your children as you would if you were to be killed in an auto accident a month into the marriage? Your spouse’s family may argue that your separate property has been converted to community property.
One way to manage a remarriage with full integrity from an estate planning perspective is to execute a prenuptial agreement that defines your separate property as you enter the union. You can work with your estate planning attorney to create a qualified terminable interest property trust, a vehicle that is often referred to as a “QTIP” trust.
The way a QTIP trust works is that you fund the trust and name your beneficiaries, who would presumably be your children. If you predecease your spouse he or she receives all of the income from the trust for life and limited or no access to the principal (you decide), but has no say with regard to inheritance of the balance of principal assets. When the surviving spouse dies, your children assume ownership of the trust assets in accordance with your wishes.
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what is a C Trust and how is it different from a QDOT?
estate planning, QDOT allows to defer estate tax if surviving spouse is non-US citizen, does C Trust (QTIP) have similar benefits and what are differences betweend QTIP and QDOT.
QTIP is Qualified Terminable Interest Property
QDOT is Qualified Domestic Trust
The difference is that QTIP has interest that is accumulated for any income earned after the trust was established. This allows you to differ any income tax to when the trust expires given that you amortize the interest over the life of the trust with equal annuity payments that are made by the trustee.
In a QDOT this is not the case and the only amount that is exempt is anything given as a qualified gift
This could all change if the death tax is abolished by the next congress…
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