Qualified Terminal Interest Property Trust (QTIP Trust)
Features & Use
A "marital deduction trust" often used by remarried individuals; allows donor to provide income to second spouse while preserving assets for children of first spouse.
Advantages
- Control of assets after death.
- Provides for spouse and children from a different marriage.
Disadvantage
- Assets taxed in estate of surviving spouse.
Irrevocable Life Insurance Trust
Features & Use
Unique trust keeps proceeds from a life insurance policy out of donor’s estate and provides beneficiaries with liquidity to pay estate taxes.
Advantages
- Estate tax advantages.
- Generation-skipping tax advantages.
Disadvantages
- Possible gift and estate taxes if there is not sufficient advanced planning.
- Death benefits paid within 3 years of date policy transferred to trust included in donor’s estate.
Credit Shelter Trust
Features & Use
Created under a living trust or by will; reduces estate taxes at death of surviving spouse, provides for both surviving spouse and heirs through use of unified estate and gift tax credit.
Advantages
- $1.2 million can pass tax-free to heirs.
Disadvantage
- May not provide sufficient income for surviving spouse.
