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Question:

If we have QTIP trusts in our joint revocable trust to protect a surviving spouse from a second marriage gold digger or second marriage divorce, can the surviving spouse serve as the trustee of the QTIP or is an independent trustee required or desirable?

Response:

While it really doesn’t matter, QTIP stands for “qualified terminable interest property.” What does matter is that such trusts provide for great flexibility in estate tax planning for married couples, permitting the personal representative (executor) for the estate of the first spouse to die to make elections that maximize estate tax reduction.

To qualify for this flexibility, QTIP trusts must provide that all income be paid to the surviving spouse. There’s more flexibility over the provisions for distributions of principal, the only requirement being that principal may not be distributed to anyone but the surviving spouse during their life. The options are:

1. That no distributions of principal be allowed.
2. That distributions may be made to or for the benefit of the surviving spouse for their health, education, maintenance or support, the so-called “HEMS” standard.
3. That distributions be made at the discretion of an independent trustee.

In the first two cases, the surviving spouse can be a trustee or the sole trustee. In the latter case, the surviving spouse cannot be the sole trustee, or they can be but must appoint an additional independent trustee if they want distributions of principal as well as income.

Those are the tax rules. But you ask a further question related to the safety of the trust. First, there’s the issue of a trustee violating the provisions of a trust. This is much less likely to happen if there is more than one trustee. Second, if the trust is drafted using the second option, there’s a lot of room for interpretation with the HEMS standard, especially with respect to what the surviving spouse might need for their maintenance and support. Having an independent trustee as sole trustee or as co-trustee with the surviving spouse definitely provides more protection for the beneficiaries who will receive what’s left in the trust upon the death of the surviving spouse.

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