QTIP Trust Can Give Husband Right to Income But Preserve Asset for Children

 In Estate and Gift Taxes, Second Marriages

Question:

I have family business interest in an LLC and an S-Corp which own commercial real estate and generate my income from rent. I would like to leave this interest to my 4 children (2 are from a former marriage), but I would like to have my husband receive the income while he is alive. Can I leave just my business interest in a QTIP trust and nothing else. I have used other probate instruments for my other assets.

Response:

Yes, a QTIP trust could be an ideal vehicle for this purpose. “QTIP” stands for Qualified Terminable Interest Property, but that doesn’t explain anything more than its acronym. It is an estate tax classification that describes trusts that the surviving spouse can choose either to include in his estate or exclude from his estate for tax purposes. On a federal level, with the threshold for taxation now over $11 million, this is irrelevant to almost everyone. But it is relevant in some states, such as Massachusetts, that still have an estate tax set at a lower threshold ($1 million in Massachusetts).

But whether or not you’re using a QTIP trust for tax purposes, it works for the goal you’re describing. A QTIP trust must provide the surviving spouse an income interest in the property in the trust. It does not have to give him access to principal or any other rights over the trust, though it could if you wished to provide more flexibility. This is not an unusual arrangement in the case of estate planning in second marriages.

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