Acquiring assets may be an important goal; however, protecting the assets those assets is an equally important estate planning goal. If you divorce and remarry, for example, you may now want to preserve assets for both your new spouse and your children from the previous marriage. One way to do that is to make use of a specialized type of trust known as a Qualified Terminable Interest Property, or QTIP, trust. The Los Angeles trust attorneys at Schomer Law Group, APC explain how you might benefit from including a QTIP trust in your estate plan.
How Does a Simple Trust Work?
Trusts have evolved to the point where there is a specialized trust to fit almost any estate planning need; however, the basic concept of a trust remains the same. A trust allows you (the “Grantor” or “Settlor”) to designate assets that will be managed by a person or entity (the “Trustee”) for the benefit of a third party (the “Beneficiary”). Trusts are broadly divided into two categories – testamentary and living trust. A testamentary trust does not activate until triggered by a provision in the Grantor’s Will at the time of death while a living trust activates when all formalities of creation are complete.
Is a QTIP Trust the Right Type of Trust for My Estate Plan?
If you were previously married and had children during that marriage, your estate plan likely dictated that all your assets were passed to your spouse upon your death with the understanding that your spouse would then pass those assets on down to your children upon his/her death. Your spouse probably created essentially the same estate plan. That works well during a first marriage; however, when that marriage ends in divorce, and you remarry that estate plan no longer works. Instead, you now want to provide for your new spouse; however, you may still want some of your assets to go to your children.
Of course, you can still leave everything to your current spouse and count on your spouse to leave those assets to your children upon his/her death. That requires a tremendous amount of faith and trust in your spouse that he/she will follow your wishes instead of squandering, or otherwise depleting, the assets. The reality is that after you are gone, your spouse will have complete control over those assets with no legal constraints on their use. Moreover, external factors, such as an economic downturn or the need for long-term care, could dimmish or deplete the assets you left your spouse despite your spouse’s best intentions. Ultimately, your children could wind up with nothing. A Qualified Terminable Interest Property trust offers a way to provide for your current spouse and protect assets intended for your children.
How Does a QTIP Work?
A QTIP trust operates in basically the same way as any other trust. You will need to appoint a Trustee to oversee the administration of the trust and to manage the trust assets. Assets transferred into the QTIP trust are not actually gifted to your current spouse when you die. Instead, your spouse receives income from the trust assets but cannot withdraw the principal from the trust nor can he or she decide on the ultimate disposition of the trust assets. In the case of real property, your surviving spouse may also receive a “life estate” in the property, meaning that he or she may remain in the home until death, but will never own the property outright. When your surviving spouse dies all assets held in the trust are then transferred to the intended QTIP trust beneficiaries, typically your children from a previous marriage.
Contact Los Angeles Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about including a QTIP trust in your estate plan, contact the experienced Los Angeles trust attorneys at Schomer Law Group APC by calling (310) 337-7696 to schedule an appointment.