Estate planning should be viewed as an ongoing process. The initial estate plan that you put in place will be based on a snapshot of your life at that time. Over the years, things change, and there are also legislative mandates that can impact have inheritance planning implications.
A change in marital status will always trigger the need for an estate plan update. There are many different approaches that can be taken, and the optimal choice will depend upon the circumstances.
If you discuss your situation with an attorney from our firm, we can provide the appropriate recommendations. With this in mind, let’s look at a very useful tool that is often used by parents that are getting remarried.
Qualified Terminable Interest Property (QTIP) Trust
To explain the value of a qualified terminable interest property trust, we will work with a simple example. Let’s say that you are the parent of adult children, and you have been divorced for a number of years. You meet the right person, and you and your significant other decide to get married.
For the purposes of this hypothetical scenario, we will say that you are quite a bit older than your spouse-to-be, and you are very comfortable financially. How do you address all of your relationships when you are devising your estate plan?
Under these circumstances, you could choose to establish a QTIP trust. In the trust declaration, you would name a trustee to administer the trust after your passing. Many people will utilize a trust company or the trust department of a bank.
A professional fiduciary can be relied upon to administer the trust in accordance with industry standards. There would be no longevity concerns or conflicts of interest, and the trustee would be a qualified money manager.
Your spouse would be the first beneficiary, and your children would be the successor beneficiaries. If you do in fact predecease your spouse, they would be able to use property that is held by the trust. This is arrangement that is sometimes referred to as a “life estate.”
The surviving spouse would also receive distributions of the trust’s earnings, and you could give the trustee the latitude to distribute portions of the principal at their discretion.
Your spouse would be in a comfortable position throughout their life, but they would not be able to alter the beneficiary designations in any way. After their passing, your children would inherit the assets that remain in the qualified terminable interest property trust.
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