Many families today include children from more than one marriage. Unfortunately, very few parents of blended families anticipate the inheritance challenges that can arise after they pass away.
For example, if a father passes away and leaves all his assets to his second wife, he may intend for his estate to provide for her throughout her lifetime with the remaining money to be distributed among his and her children. However, when the second wife dies, all her assets, which include those she received from her husband, may end up with only her children, and the children from the man’s first marriage may end up with nothing.
Benefits of a QTIP trust
To prevent this from happening, those with blended families might consider setting up a qualified terminable interest property (QTIP) trust. With a QTIP trust, you can provide for your surviving spouse for the duration of that person’s lifetime. Because this is the main function of the trust, it qualifies for the marital deduction.
When your surviving spouse passes away, the assets in the trust are taxed as part of his or her estate. However, the leftover principle assets in the trust will be distributed based on the terms of the trust, which you determined when you set it up.
Your surviving spouse cannot change the beneficiaries after you die and cannot sell or give away the property he or she receives. This means that with a QTIP trust you can name your children as the ultimate beneficiaries without having to worry if your children from a previous marriage will end up disinherited.
Estate planning can be complicated if you have a blended family. A QTIP trust may be one option to help you juggle the interests of your spouse as well as children from a previous marriage.
