If you’re about to embark on a second (or third) marriage, you’re likely considering what changes you need to make to your estate plans. If you don’t already have an estate plan, you shouldn’t wait any longer.
Likely, your goals for your estate plan include ensuring that your new spouse is taken care of financially if you die first — as well as making sure that your children from your previous marriages or relationships receive their inheritances.
Too many people make the mistake of leaving everything to their new spouse with the reassurance from them that they’ll see to it that their stepchildren are will get a share. Too often, that’s not what happens. We’ve seen these stepparent-stepchildren battles play out in the media, and they can get ugly.
How a QTIP trust works
With a qualified terminable interest property (QTIP) trust, you can avoid this. A QTIP trust is typically set up to include investments, real estate properties and other income-earning assets. The income from the trust is paid to the surviving spouse, who isn’t entitled to touch the assets or change any of the beneficiaries, the trustee or any of the provisions of the trust. The trust is not subject to estate taxes as long as the surviving spouse is alive.
When the surviving spouse passes away, the assets in the trust are distributed to the children or whomever the person who set up the trust (the grantor) designated. At that time, if the estate is large enough, it may be subject to taxes.
Why you might want to consider other options
A QTIP trust may not be right for your family. For example, if your new spouse is significantly younger than you are, your kids may not benefit from it for decades unless you make other provisions.
The best thing to do is discuss your goals for your legacy, your family dynamics and your concerns with your estate planning attorney. They can guide you toward the best tools for accomplishing those goals and maintaining family peace while you’re around and after you’re gone.