Estate PlanninG

The QTIP Trust

Estate planning requires special attention in a second marriage when one of the spouses has more assets than the other. One of the tools to help couples in this situation is the QTIP Trust or Qualified Terminable Interest Property Trust. The QTIP trust allows the spouse with greater wealth, to transfer as many assets that he or she wants, into a trust for the other spouse free from estate and gift taxes.

Using the “AB Trust” strategy, when the first spouse passes, the “B” trust contains an amount equal to the federal estate tax exemption and the “A” trust retains the rest. The “A Trust” is really the “QTIP Trust” that qualifies for the unlimited marital deduction, meaning that anything placed in this trust will not pay estate taxes until the surviving spouse passes.

The QTIP trust has some of the following benefits:

  • For the less wealthy spouse, he or she can get all of the trust income and some trust principal for special purposes;
  • Upon the passing of the less wealthy spouse, the assets left in the trust are part of his or her estate, using any of the less wealthy spouse’s unused federal estate tax exemption;
  • If the less wealthy spouse passes first, the remaining trust assets can stay in an asset-protected trust for the wealthy spouse’s use and the remainder is excluded from the wealthy spouse’s estate.

If you or your spouse are in a second marriage, contact the attorneys of San Ramon, Danville, Dublin and Pleasanton area law firm, Santaella Legal Group, APC, for assistance.