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  1. #11
    Join Date
    Oct 2014
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    7,920

    Default Re: Qtip Immediate Payout

    Quote Quoting Diver4242
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    I'm the OP circling back to this. Thank you so much for the informed responses. My spouse and I already have wills, living wills, etc in place. It's just this one problem that's baffling us. It sounds like QTIP isn't the right vehicle.
    It's not clear to me what "baffling" problem you have that would specifically require a QTIP. Why a QTIP rather than some other kind of trust, for example? What is it that you see as the problem you want to solve?

    Quote Quoting Diver4242
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    I heard someone elsewhere mention that they had their estate plan set up such that upon the event of their death, a trust was immediately created for their children. How does that work? Is that a way to create a trust for kids without having to set aside the assets and fund it in advance? It was on a podcast and without much context, but I was curious if it could solve this problem for us.
    Broadly speaking, trusts fall into two categories. The first are inter vivos trusts (what is popularly called living trusts). These are trusts that you create during your lifetime. Then there are testamentary trusts. This is a trust created after you die, typically by putting the terms of the trust in your will. You can also create an inter vivos trust but not fund it (known as leaving it dry) until your death and have the will direct assets to that trust.

  2. #12
    Join Date
    Aug 2018
    Posts
    19

    Default Re: Qtip Immediate Payout

    My wife and I both have have adult children from prior marriages, no kids together, none underage from the prior marriages. We want things set up so that if either of us passes, a set amount will be given to the deceased's children at that time. We don't want them to have to wait until the surviving spouse passes. We want it in writing. We love and trust one another but we both realize that "stuff happens". Yes, we have both ensured that the remaining assets will be plenty for the surviving spouse to live on for the rest of their lives.

  3. #13
    Join Date
    Oct 2014
    Posts
    7,920

    Default Re: Qtip Immediate Payout

    Quote Quoting Diver4242
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    My wife and I both have have adult children from prior marriages, no kids together, none underage from the prior marriages. We want things set up so that if either of us passes, a set amount will be given to the deceased's children at that time. We don't want them to have to wait until the surviving spouse passes.
    Ok. Then you could put in your will that when you die each of your kids gets $X and your wife gets the rest, and she could do the same thing. There is no requirement that your spouse get everything when you die. Or you could set up a revocable living trust to do the same thing, give your kids $X when you die and the rest of the trust goes to the surviving spouse. Either way will achieve what you want to do. If all you are concerned about is getting your kids $X at the time the first spouse dies then a QTIP is not needed. A QTIP has very specific provisions in it to provide for estate tax planning. Unless you need that kind of tax planning (and unless you'll have an estate worth $5 million or more you probably don't) then you don't really need a QTIP. Other more common estate planning tools, like a will or revocable living trust, can do what you say you want to do.

    If what you want to do is lock in what the kids will get so that neither you or your wife can change that before the first of you dies, that's a different problem. You'd either need a contract for wills (which have certain practical problems) or set up a nonrevocable living trust and put the money you want the kids to have in that trust. That trust could then specify that the kids do not get the money/property in that trust until the first spouse dies. But understand that if you do the nonrevocable living trust, you put that money out of your reach and cannot then us the money yourself if needed. You cannot both have access to the money during your lifetime and yet totally lock up the funds for your kids at the same time. Note too that if you go this route any property you put in that nonrevocable trust will not get a basis step up when you die, which means your kids would pay more in tax on the gain than if they get that property from your will or from a revocable living trust.

  4. #14
    Join Date
    Aug 2018
    Posts
    19

    Default Re: Qtip Immediate Payout

    Quote Quoting Taxing Matters
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    Ok. Then you could put in your will that when you die each of your kids gets $X and your wife gets the rest, and she could do the same thing. There is no requirement that your spouse get everything when you die. Or you could set up a revocable living trust to do the same thing, give your kids $X when you die and the rest of the trust goes to the surviving spouse. Either way will achieve what you want to do. If all you are concerned about is getting your kids $X at the time the first spouse dies then a QTIP is not needed.
    Thank you so much, that was a clear and detailed response. The above that I quoted sounds like what we want to do. This information gives us a sound basis of knowledge for when we sit down with an estate attorney to get it done. Is the revocable living trust the same as the testamentary trust or inter vivos that you described earlier? How would we change our account (401k, IRA, savings) beneficiaries should we choose one of those?

  5. #15
    Join Date
    Oct 2014
    Posts
    7,920

    Default Re: Qtip Immediate Payout

    Quote Quoting Diver4242
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    Is the revocable living trust the same as the testamentary trust or inter vivos that you described earlier?
    A revocable living trust is the widely used name for what lawyers would formally call a revocable inter vivos trust. All trusts you set up during your lifetime are inter vivos trusts. They can have all kinds of provisions in them. One of the most popular forms of living or inter vivos trust for estate planning have a feature that allows the grantors of the trust (you and your wife) to revoke the trust and take back all the assets in it while you still live. The reasons that the revocable living (inter vivos) trust is popular are that:

    • It is flexible because it can be revoked at any time, so you can easily change your plans later if needed.
    • All the assets in the trust avoid probate, which can be kind of slow and in some states expensive, too.
    • A revocable living trust is one form of a grantor trust under the Internal Revenue Code (IRC). Grantor trusts are treated for federal tax purposes as though the trust does not exist and thus treated as though you still own the trust assets directly. This is what allows the property in the trust to get a step up in basis when the grantor dies.


    A testamentary trust is one that is created after you die. Your executor would set up the trust following the terms set out in your will and then fund the trust with estate assets. But using a testamentary trust only makes sense if you want to delay distribution of the estate assets. If you want everyone to get their inheritance right after you die, then passing the property directly by will (and leaving out the testamenatary trust) or by an inter vivos/living trust are the better ways to do that.

    Quote Quoting Diver4242
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    How would we change our account (401k, IRA, savings) beneficiaries should we choose one of those?
    You have several options depending on what you want to do and the details of your assets. If one of those accounts is something you'd like your kid to have when you die, you may simply be able to make that kid your pay on death beneficiary of that account. Then when you die, the institution holding the account would simply transfer that account to your kid. That bypasses probate altogether for that asset. No will or trust would be needed. Or you could leave off a designated beneficiary and either put it in your living trust or specify in your will who gets it.

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