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Military Finances 301: Do You Need a QTIP Trust? Thumbnail

Military Finances 301: Do You Need a QTIP Trust?

Estate Planning

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.

  1. The property must “pass” from you to your spouse
  2. Your spouse must be entitled to receive all the income from the trust or property
  3. Only your spouse can decide what can be done with the assets
  4. 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:

Military Financial Planning 101: A Primer on Trusts for Estate Planning

Military Finances 301: Avoid These Blunders When Setting up a Living Trust

Inherit the Family Home? Tax Consequences for Military Officers

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