Lifetime QTIP Trusts and Your Second Marriage

Diane was a successful business owner with three children from her first marriage. Jack, a car salesman, was father to two children from his first marriage. When they found love the second time around, they realized it was time to update their estate plans to meet the needs of their blended family. Their goals were slightly different, though. Diane, the wealthier of the two, lived at a higher standard of living than Jack. More importantly, she wanted her children to benefit from her success without leaving Jack destitute if something happened to her. She started researching lifetime QTIP trusts to address the changes brought about by her second marriage.

How a QTIP Trust Works.

QTIP stands for Qualified Terminable Interest Property. Using a QTIP trust allows one spouse to provide for a less wealthy spouse while:

• reducing or avoiding estate and gift taxes because the proceeds are not taxed until the surviving spouse’s death;
• leaving an inheritance for the children of the spouse who created the trust;
• allowing the settlor to retain some control over the trust and how it’s distributed after his or her death.

QTIP trusts are not for everyone, although there are some people who will greatly benefit from them.

Why Use QTIP Trusts.

QTIP Trusts can serve as stress reducers on several levels.

• Children from prior marriages can be confident their inheritance is protected from the second spouse. Diane’s children may not feel as stressed by her second marriage if they know their mother has provided for them. Among other things, the trust is protected from the surviving spouse’s creditors and future spouses. If Jack becomes bankrupt or remarries, Diane’s children are protected.
• The second spouse will be able to stay in the family home enjoying the same level of comfort. Jack will not have to worry about his quality of life if Diane passes away first. He’ll know whether he can stay in the family home and how much money he will have to live on.
• Distribution of assets is less likely to be affected by family tensions. If Diane passes away first without securing proper estate planning tools – like the QTIP trust – Jack might be responsible for distributing assets. He may distribute them in a manner different than Diane intended. Diane’s children may dispute his decisions, leading to a court battle or, at the very least, a family feud.

Will a QTIP Trust Be Right for You?

At Law Offices of John Mangan, P.A., we help clients build a solid plan for their estates, one that fits their circumstances. Please contact us at 772-324-9050 to schedule an appointment or fill out our Contact Form. We are located in Palm City, Florida, and serve clients in surrounding communities like Stuart, Hobe Sound, Port St. Lucie, and Jupiter.