If you’re entering a ‘later in life’ marriage or a second marriage, you may have significant wealth built up while your spouse doesn’t or vice versa. Lopsided marriages such as this are common later in life, but they can pose serious financial concerns, especially for the wealthier spouse.
A solution to the lopsided financial situation is a lifetime QTIP Trust. Here’s what you must know.
What is a Lifetime QTIP Trust?
QTIP Trust stands for Qualified Terminable Interest Property Trust. In short, the QTIP trust allows a wealthy individual to provide for his/her surviving spouse upon the grantor’s death, while controlling the assets when the surviving spouse dies.
In other words, it protects a wealthy individual’s money ensuring his/her spouse is cared for, but that the wealthy individual’s money isn’t taken advantage of by non-family members when the surviving spouse dies.
How Does it Work?
The QTIP Trust pays a surviving spouse a set income annually. This ensures the spouse is taken care of financially upon the death of his/her spouse. The remaining funds sit in the trust untouched until the surviving spouse dies.
At that point, the trust is executed, distributing the assets to its beneficiaries as the grantor originally stated. This helps protect the grantor’s beneficiaries should the grantor die first and the surviving spouse’s family tries to take over the finances.
It’s important to note that the QTIP Trust is irrevocable – you can’t change it once you set it up.
Who Should Use a Lifetime QTIP Trust?
The QTIP Trust was created for wealthy individuals who remarry or marry late in life. If you have a high net worth built up and have beneficiaries of your own you want to leave your assets to but want to protect your new spouse too, this trust will help.
You’ll ensure that you take care of your spouse while he/she is alive, but also protect your assets from being taken by relatives by the new marriage that you didn’t intend to leave the assets to. It also protects your assets should your spouse remarry.
The Pros and Cons
- The first spouse that passes away controls how the assets are distributed upon the spouse’s death
- No taxes are due upon the death of the first spouse, only after the second spouse dies are there tax implications
- You must appoint at least one trustee, but can appoint multiple if you wish
- No one can put a lien against the property since the spouse doesn’t own it – the trust does
- It could cause strife between the surviving spouse and remaining beneficiaries
- The surviving spouse doesn’t have unlimited withdrawal powers; the payments are based on the income the trust earns
- The trust is irrevocable (can’t be changed)
If you’re remarried or marrying late in life and have ‘other’ beneficiaries, you may want to consider a lifetime QTIP trust. It will provide peace of mind knowing you are taking care of your spouse after your death, but your assets aren’t being taken advantage of and robbing your original beneficiaries out of their proceeds.