Do you need a QTIP Trust? What is one? Well it isn't used for cleaning your ears (at least the type of QTIP I'm talking about). A QTIP is Qualified Terminal Interest Property. QTIPs can be an important part of a well thought out estate plan.
How Does a QTIP Work?
As you may be aware, when you pass away, you can leave as much money and property as you would like to your spouse and owe $0 in estate tax. This is the general case. If a spouse receives a terminal interest in the asset, the spousal exclusion is not available. What is a terminal interest? It means that after some passage of time or after some event occurs (or doesn’t occur) the right to the asset ends. Some examples include life estates and some annuities. There is a work around…The QTIP. A QTIP is an interest in property that passes upon your death and your spouse will receive all the income for the remainder of his or her life and this right can’t be revoked. To further qualify as QTIP property it must meet 4 other conditions.
The property must “pass” from you to your spouse
Your spouse must be entitled to receive all the income from the trust or property
Only your spouse can decide what can be done with the assets
The executor of your estate must decide to qualify the property QTIP
How Can a Retired Senior Military Officer or NCO Use a QTIP?
A QTIP trust can be useful for blended families, if estate taxes may be a concern. And, don’t forget some states have estate tax exemptions much lower than the Federal limit. In this scenario, the retired military officer would direct a QTIP through his or her estate documents. An example would be a trust that grants the surviving spouse all income from the trust and the ability to decide what will be done with the assets. Upon the surviving spouse’s death, the assets would pass to the children of the deceased military member’s children. The funds going into the QTIP would be entitled to the unlimited spousal exemption and the money left upon the passing of the surviving spouse will not be subject to estate tax.
A word of warning though. This is complicated. You need to work with an attorney that lives and breathes estate planning. We also think your financial affairs, as an active or retired military member, are so unique that you need a financial advisor that works on your issues every day. If you’d like some help, give us a call.
If you found this article useful, you might like the following blog posts:
Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.
