Estate Planning with QTIP Trusts

Many people do not have a solid understanding of the tax implications of trust planning. Perhaps even more important is understanding the use of trusts for preserving assets for your spouse and children. One common technique to accomplish these estate planning goals is the Qualified Terminable Interest Property Trust, also known as the QTIP Trust. Our Montgomery County, PA estate planning lawyers often suggest a QTIP Trust when a client is remarried and wishes to primarily provide for his or her current spouse while preserving assets for his or her children from the first marriage upon the death of the second spouse.

 

QTIP Trust in Pennsylvania

The Federal Estate Tax rules provide an unlimited marital deduction that allows an individual to leave assets to a surviving spouse free of federal estate taxes. This deduction applies regardless of the size of the estate and applies to joint assets, retirement benefits, insurance benefits and bequests. In most circumstances, the marital deduction is accomplished through an outright transfer to the surviving spouse. Generally, if a spouse places assets for a surviving spouse in trust, the trust will not be qualified for the unlimited marital deduction; however, an alternative is through the use of the QTIP Trust.

Since the QTIP Trust rules provide the mechanism for a tax-free transfer to the surviving spouse, the QTIP Trust is extremely beneficial. The QTIP Trust is irrevocable, and the surviving spouse can only use the assets according to the terms of the trust. This can be quite advantageous if the spouse remarries as the assets will remain in the trust. Upon the death of the second spouse, the assets in the QTIP Trust then pass to the children or the children of a prior marriage.

A QTIP Trust must be structured according to IRS rules so that the transfer of assets to the trust for the benefit and use by the surviving spouse can still enjoy the same unlimited deduction as if the assets passed outright to the surviving spouse. Therefore, it is important for any individual to consult an experienced PA trust and estate planning attorney for creation of a QTIP Trust.

QTIP Trusts are also commonly utilized with Credit Shelter Trusts, which are often use to preserve additional assets from federal estate taxes.

 

Wills and Trusts Lawyers | Montgomery County, PA

The Wills and Trusts lawyers at The Martin Law Firm have been assisting clients with the development of a comprehensive Pennsylvania estate plan for over 10 years. Our Wills and Trusts lawyers represent individuals, partners, and families in Montgomery County, PA, as well as the surrounding areas of Bucks County, Chester County, Delaware County and Philadelphia County. Our Wills and Trusts lawyers are well versed in tax planning and the tax implications of a QTIP or other trust. Contact The Martin Law Firm today for a free case evaluation at 215-646-3980.