PFwise.com
Search
  • Home
  • Blog
  • Tools
  • Know-how
    • Insurance 101
    • Annuity 101
    • College Planning
    • Real Estate
    • Retirement Planning
    • Smart Investment
    • Stock Ideas
    • Tax Planning
  • About Us
  • 中文
  • Resources
    • Personal Finance Reading List
    • Financial Aid Resources
    • Personal Finance Calendar
    • Retirement Planning Calendar
    • ETF list
    • Financial Glossary
  • Newsletters Archive

6 Trusts You Should Know About (II)

10/4/2013

0 Comments

 
Picture
2. QTIP Trust

With large estates the QTIP trust provides a way to defer estate taxes by taking advantage of the marital deduction, yet “control from the grave” by directing who will eventually receive the property upon the death of the surviving spouse.

Under such a trust all income must be paid at least annually to the surviving spouse. The trust can be invaded only for the benefit of the surviving spouse, and no conditions can be placed upon the surviving spouse’s right to the income (e.g., it is not permitted to terminate payments of income should the spouse remarry). However, in order to qualify the executor must make an irrevocable election to have the marital deduction apply to property placed in the trust. This requirement not only gives the executor the power to determine how much, if any, of the estate will be taxed at the first death, it also provides great flexibility for post death planning based upon changing circumstances.

Our example assumes that in 2013 we have an estate of $11,500,000.

UPON THE FIRST DEATH, the estate is divided into two parts, with one part equal to $5,250,000 placed in a family or nonmarital trust (“B” trust in the chart). No taxes are paid on this amount since the trust takes full advantage of the $2,045,800 unified credit (i.e., the amount of credit in 2013 that allows each individual to pass $5,250,000 tax-free to the next generation). The remaining $6,250,000 is placed in the QTIP trust.

The executor may elect to have all, some, or none of this property treated as marital deduction property. Assume that in order to avoid appreciation of assets in the surviving spouse’s estate and obtain a stepped-up basis for additional assets taxed upon the first death the executor decides to make a partial election of $5,750,000 (i.e., of the $6,250,000 placed in the QTIP trust only $5,750,000 will be sheltered from estate taxes at the first death). This means that $500,000, the “nonelected” property, will be taxed at the first death. Although $200,000 of estate taxes must be paid, the remaining $300,000 will now be excluded from the taxable estate of the surviving spouse (any appreciation of this property after the first death will also be excluded). If authorized under the trust document or by state law, the executor can sever the QTIP trust into separate trusts.

UPON THE SECOND DEATH, the estate subject to taxation is limited to $5,750,000 (the amount remaining in the trust for which estate taxes were deferred). After paying taxes of $200,000, there remains $5,550,000. This amount, together with the $300,000 from the severed trust and the $5,250,000 from the “B” trust, are passed to the beneficiaries under the terms previously established in these trusts.

Information required for analysis & proposal

Attorney Drafting Will And Trust Must Know

1. Spouse’s name.

2. Children’s names.

3. Name of executor/executrix.

4. Ages of minor children.

5. Information regarding children of prior marriages.

6. Names and ages of other beneficiaries.

7. Trustee after testator’s death.

8. To whom, in what amounts, and when trust income is to be paid.

9. To whom, in what amounts, and when trust corpus is to be paid.


0 Comments



Leave a Reply.

    Author

    PFwise's goal is to help ordinary people make wise personal finance decisions.

    Archives

    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013

    Categories

    All
    Annuity
    Book Reviews
    College Finance
    Finance In Formula
    Financial Scams
    For Entrepreneurs
    Healthcare
    Insurance
    Investment
    Miscellaneous
    Real Estate
    Retirement
    Savings
    Savings Ideas
    Stock-ideas
    Tax
    Tax-related

    RSS Feed

Copyright © 2013 - 2022 PFWise.com, All Rights Reserved. 
IMPORTANT DISCLOSURES
PFwise.com does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that any material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
About Us | Contact Us 
中文