The estate planning process raises many questions as people must work through personal preferences and practical decisions. The plethora of estate planning tools offers flexibility but may also create confusion for some people.
When evaluating estate planning tools, spouses in blended families may want to consider the use of a qualified terminable interest property trust.
Life without a QTIP trust
A remarried spouse might opt to create a basic will. That will might leave all assets to his or her surviving spouse. The couple may well discuss the person’s wishes that his or her children receive specific assets when the spouse dies. The will may detail these wishes as well.
However, Forbes explains that a surviving spouse may make different decisions once the first spouse dies. The will may have no power to mandate the surviving spouse to give assets to the first spouse’s children. The surviving spouse may create his or her own will that leaves all assets to other parties.
Life with a QTIP trust
When a person creates a QTIP trust, the surviving spouse and the children receive exactly what the person stipulates. The trust provides an income for the surviving spouse for the duration of his or her lifetime. Once that person dies, the children of the first spouse to die receive the assets that remain in the trust.
Income from a QTIP qualifies for the marital tax deduction which further helps the surviving spouse. The surviving spouse must holds U.S. citizenship and receive distributions at least once every four months. Taxes apply once the surviving spouse dies.