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The Basics of QTIP Trusts

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Estate taxes are assessed on the value of your assets including your retirement benefits, real estate, and life insurance. At the time of this newsletter, the federal estate tax exemption is currently $13.61 million per person for deaths in 2024. In 2026, the that exclusion amount will revert to the 2017 level. That would be about $5 million per person as adjusted for inflation, unless congress makes further changes. With the estate tax exemption amount dropping, planning to minimize estate taxes has become top of mind for more people. Fortunately, there are many tools estate planning attorneys can use to minimize those taxes. One of these tools, is a QTIP trust.

What is a QTIP trust?

A qualified terminable interest property trust (also known as a QTIP Trust) is a type of irrevocable trust. At it’s base level, a QTIP trust is similar to an A/B trust or a disclaimer trust, just with more restrictions.

As mentioned before, to be  QTIP-able the trust must be irrevocable. This means no-one, including the trustor, has the authority to revoke it. The trust must also be fully for the benefit of the spouse during the spouse’s lifetime. This means that while the spouse is alive, the trustee must be unable to make distributions to other beneficiaries. This means no income or principal can be distributed to children, charities or other any other person or entity. The spouse must also be entitled to all of the income of the trust. Finally, the surviving spouse must be able to compel the trustee to turn unproductive assets, into productive assets. If all of these requirements are met, then the trust is QTIP-able. From there, it is up to the personal representative of the estate to elect QTIP status when filling out Form 706 on the Trustor’s death.

QTIP trusts are useful for tax planning.

QTIP trusts are usually appealing to married couples with large estates or with estates that may be at risk of passing the estate tax threshold. The appeal of QTIP trusts lies, in part in that flexibility in tax elections. QTIP trusts allow the personal representative (or whoever is signing the 706 tax form) to elect to claim the marital deduction on the death of the first spouse. The election is not necessarily mandatory so, if the value of the estate goes down or the exemption amount rises, the personal representative can opt not to claim the marital deduction. By providing them the option of electing the marital deduction, QTIP trusts offer your personal representative the flexibility to assess the value of the estate on your death and make the right decision at the time.

QTIP Trusts appeal to mixed families.

QTIP trusts also appeal to couples with mixed families because they allow a trustor to provide for the surviving spouse during the spouse’s lifetime, while also directing where trust assets go after the death of that surviving spouse. Often times, the trustor wants to provide for their spouse, but also ensure that if they die first, their kids and heirs are provided for.

QTIP trusts allow the trustor to provide for the surviving spouse during their lifetime. But, QTIP trusts also prevent the surviving spouse from changing the beneficiaries after the trustor has died. Instead, the trustee distributes assets according to the trustor’s wishes expressed in the trust once the surviving spouse dies. Once the trustor dies, the trustee distributes any trust income to the surviving spouse at least annually. The trustee holds the balance of the trust estate for the benefit of the spouse during their lifetime. On the death of the surviving spouse, the trustee distributes the remainder of the trust estate to the beneficiaries determined by the trustor.

You should consult with an attorney to determine if a QTIP trust is a good fit for your estate plan.

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Robert B. Fleming

Attorney

Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman

Attorney

Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson

Attorney

Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour

Attorney

Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.