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Use of QTIP Trust in Second Marriages

couple discussing about QTIP Trust for second marriages

Second marriages come with unique estate planning challenges, especially if you have children from a prior marriage. You may feel the tension between providing for your new spouse and leaving a legacy to your children from outside the marriage. You can overcome most of these challenges with careful estate planning. A Qualified Terminable Interest Property (QTIP) trust is a useful tool that all individuals entering a second marriage in Naples, Florida should consider adding to their estate plan.

What is a QTIP Trust?

A QTIP trust is a type of irrevocable trust that allows the creator (the grantor) to provide for their surviving spouse and maintain control of how the trust’s assets are distributed once the surviving spouse dies. The income (and sometimes principal) generated by the trust is given to the surviving spouse to ensure they are taken care of for the rest of their lives. The balance of the property is held in the trust until the surviving spouse’s death, at which point it is paid out to the beneficiaries specified by the grantor (usually the children from the grantor’s first marriage). Your surviving spouse will not be able to leave the property in the trust to anyone else. QTIP trusts are authorized by language in Internal Revenue Code Sections 2056(b)(7) and 2523(f).

Why Should I Use a QTIP Trust After a Second Marriage in Naples?

A QTIP trust is not for everyone, but it is critical to understand its benefits if you are entering a second marriage. Five reasons you should consider adding a QTIP trust to your estate plan are listed below.

1. It will reassure children from your previous marriage that their inheritance is protected. Blending families is not always a smooth transition. One area of stress often felt by children is that the new spouse will waste or squander their inheritance. A QTIP trust eliminates these concerns and reduces resentment. There is a much higher chance everyone in your family will celebrate the love of your new marriage.

2. It ensures that your wishes are followed. Many people simply want to trust their new spouse to pass on whatever remains of their inheritance to your children at their death. However, no matter how much you trust your spouse or how strong your new spouse’s relationship is with their stepchildren, you cannot predict what will happen after your death. First, tensions often arise after a death that can change family dynamics and decision-making. You cannot guarantee that your spouse will not remarry or an emergency will not arise making it difficult or impossible for your spouse to honor their promises to you. A QTIP trust ensures that you will retain control over your inheritance and your wishes are followed.

3. It alleviates your new spouse’s concerns about receiving property after your death. Through a QTIP trust, you can guarantee your spouse that they will be able to remain in the marital home and have access to regular income, even if your assets are eventually passed down to your children. Your spouse will be given the security and peace of mind that they can spend the remaining years of their life enjoying the same level of comfort.

4. It reduces tax liability. A QTIP trust delays and can minimize estate and gift tax. The property within a QTIP trust qualifies for the unlimited marital deduction. The effect of the marital deduction is that the trust assets are not taxed until the surviving spouse’s death. When the surviving spouse dies, the liability is transferred to the named beneficiaries of the trust. The assets in the trust are not included as part of your spouse’s estate. The current federal estate tax exemption is $11.7 million per individual, meaning $23.4 million per couple. Florida has no estate tax.

5. It reduces the risk of disputes after your death. Without a QTIP trust, your children and surviving spouse could disagree about how your inheritance is being distributed, leading to a lengthy and expensive court battle. Even if litigation is not brought, disagreements about money can destroy family relationships. A QTIP trust ensures that your intentions are made clear and that both your children and your spouse are cared for.

Call A Naples Estate Planning Lawyer

If you have questions about QTIP trusts, you should contact an experienced estate planning Naples attorney. Attorney James R. Nici can help create an estate plan that fits your needs. Contact our offices today at (239) 449-6150 or use our web form to set up a free consultation.

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