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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.
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