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  1. #1
    Join Date
    Aug 2018
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    19

    Default Can You Create a QTIP With Immediate Payout to Beneficiaries

    My question involves estate proceedings in the state of: DE

    To qualify the above, we're currently in NJ but moving to DE in December. My wife and I are both in our second marriage and have adult children from our previous marriages. We are past the age of having more kids.

    We both wanted to set up our wills so that in the event one of us dies, that person's children would receive a set amount at that time. We tried doing it with beneficiaries, but of course that's a mess with some accounts being pretax, others not, etc.

    In doing some research, the QTIP seems to be set up to solve this problem. But those are set up so that the surviving spouse keeps that money in trust and benefits from any income generated from it until he/she passes, then it is paid out to the children of the first deceased spouse. We would like to provide for our children as soon as we pass, not have them wait until the other spouse passes. Is that possible with a QTIP if both spouses are in agreement? We have no real estate, only liquid assets in pre-and post tax accounts, we're 60 and 58 years old, and also some life insurance.

    Thanks in advance for any help.

  2. #2
    Join Date
    Sep 2010
    Posts
    19,744

    Default Re: Qtip Immediate Payout

    A lawyer can help you create a trust that likely does what you want.

    QTIPs as well as any sort of irrevocable trust has the drawback that if you have sudden need for the trust assets, they are no longer available to you.

    Neither QTIP nor most trusts are going to "undo the mess" of taxability. The only thing that some of these MIGHT escape is the gift/estate tax which unless you have accounts in the tens of millions aren't likely an issue. If they are, you can well afford an attorney to help you.

  3. #3
    Join Date
    Aug 2018
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    19

    Default Re: Qtip Immediate Payout

    Quote Quoting flyingron
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    A lawyer can help you create a trust that likely does what you want.

    QTIPs as well as any sort of irrevocable trust has the drawback that if you have sudden need for the trust assets, they are no longer available to you.

    Neither QTIP nor most trusts are going to "undo the mess" of taxability. The only thing that some of these MIGHT escape is the gift/estate tax which unless you have accounts in the tens of millions aren't likely an issue. If they are, you can well afford an attorney to help you.
    Thank you for your response. No, we're not in the tens of millions so we're okay there.

    I was thinking that doing it this way would permit the surviving spouse to consult with an accountant/tax person to find the most efficient and least costly way to pay out the assets. By saying "if you have a sudden need for the trust assets, they are no longer available to you" do you mean after the payout, or while we're both alive (e.g. the assets have to be put in a special account we can't touch)? We have done the calculus such that the surviving spouse would have plenty to live on after the payout to the children, and would change the allocation if necessary over time.

    Based on what I described a regular trust, not a QTIP would be better?

  4. #4
    Join Date
    Sep 2010
    Posts
    19,744

    Default Re: Qtip Immediate Payout

    It would sound like by your needs a QTIP is NOT the right vehicle. However, any form of irrevocable trust is going to have problems.

    What do you intend to do with the assets that you and your wife are living on other than those that you intend to put in the trust. Unless you think you've got things timed down to having the last check you write bounce, you're going to have to also provide a mechanism for the rest of your estate.

    Again, I suggest an attorney. While you're dealing with the estate issues, you can also take care of medical and general powers of attorney and advance medical directives (living will) that can handle the case where one of you needs to act for the other if incapacitated (or someone you designate in the case that both are incapacitated or one is deceased).

  5. #5
    Join Date
    Oct 2014
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    8,018

    Default Re: Qtip Immediate Payout

    Quote Quoting Diver4242
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    Based on what I described a regular trust, not a QTIP would be better?
    A QTIP is specifically designed as a way to limit the surviving spouse's access to the property in the trust but yet still qualify the property that goes into the trust for the federal estate tax marital deduction. Unless your estates are expected large enough (at least over $5 million for each of you) the estate tax will not be a significant concern here and a QTIP specifically would not be needed. If you immediately pay out the assets from the trust to persons other than the spouse you defeat the purpose of the QTIP, so if you contemplate the possibility here that the kids might get all or a significant part of the property before the suriviving spouse dies a QTIP is not what you are looking for.

    If your goal here is simply to have the surviving spouse determine the best time to give assets to the kids rather than giving it to them outright at the death of the first spouse, the best way with smaller estates to do that is usually to simply give the assets to the suriving spouse and he or she can make gifts of the property as he or she deems appropriate. That allows the surviving spouse to use those assets for his/her needs first, which can help deal with unexpected needs that might arise. The reason for using a trust for this would generally be to limit the suriving spouse's ability to have unfettered access to the assets for some reason. That may be because the spouse is careless with money, has a lot debt problems, step parent situations where you fear the suriving spouse wouldn't give them what is left after he/she dies, etc. The type of trust you want depends on your goals and the reasons for them. There are lots of ways you might set it up other than a QTIP if you don't need to save estate tax.

    Is there some reason why you don't want the surviving spouse to get the assets directly and just make gifts to the kids? If so what is that reason and what limits do you want the spouse to have on his/her access to the property? Do you have specific restrictions in mind for when the kids are able to get the property?

    An estate planning lawyer can review your situation and your goals and design a plan for you that would best meet your needs.

  6. #6
    Join Date
    Nov 2013
    Posts
    6,931

    Default Re: Qtip Immediate Payout

    Quote Quoting Taxing Matters
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    Unless your estates are expected large enough (at least over $5 million for each of you) the estate tax will not be a significant concern here and a QTIP specifically would not be needed.
    Wasn't that raised to $11,180,000 per person in the 2017 tax overhaul?

  7. #7
    Join Date
    Oct 2014
    Posts
    8,018

    Default Re: Qtip Immediate Payout

    Quote Quoting budwad
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    Wasn't that raised to $11,180,000 per person in the 2017 tax overhaul?
    Yes, it was. But that lasts only until 2025, at which point it will again drop down to $5 million (plus inflation adjustments). So assuming planning includes for years past 2025, you want to take that reduction into account.

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