Generally, an estate will be subject to federal estate tax if its value exceeds the exemption amount (set by Congress) in the year of death.
However, if a married person leaves her estate to her spouse at death pursuant to a well-crafted document, then the spousal gift can avoid federal estate tax at the time of the first spouse’s death. The spousal gift can be left outright (in fee simple) or in a properly-drafted QTIP trust.
What is a QTIP Gift? You must leave assets to your surviving spouse, and this can be outright (in fee simple). However, we often create a QTIP trust for a surviving spouse. If we do, the following requirements must be met to claim the deduction:
- Your QTIP trust must distribute all its income to your surviving spouse.
- Your spousal beneficiary is required to be a U.S. citizen.
- You can have no other beneficiaries until your surviving spouse passes away.
- Your surviving spouse must be provided with an income at least once each year.
- The surviving spouse possesses the authority to compel the trust’s fund manager to transform non-income producing assets into revenue-generating assets.
Contact us to learn whether a QTIP trust is appropriate for your family.
[*QTIP stands for “qualified terminable interest property” and is technical tax language.]
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