New York Estate Planning & Elder Law Blog
The formation of a Qualified Terminable Interest Property (“QTIP”) trust is a tax-exempt estate planning option that allows for an owner to elect distribution of estate assets to named beneficiaries, including children of a preceding marriage. In most cases, estate property assets transfer automatically to a surviving spouse under federal and New York estate law. The creator of a QTIP trust does not transfer any assets during their life. Most estate holders include a trust as part of their will, not as a separate entity. A safe estate planning option for parents interested in protecting the rights of children to their estate, the QTIP is one of the best estate planning tools for transferring property after death.
The Interests of Surviving Children
The circumstance of a second or third marriage as part of the consideration of an estate or trust formation is most usually relevant where there are surviving children of those unions.
For spouses with multiple marriages in their past, the QTIP is an essential planning tool that allows for apportionment according to the will or last testamentary instructors of the estate creator. QTIP trusts are ensure that income apportionment to surviving children of second and third marriages are taken care of in the process.
Creditors, Predators, Probate
Asset protection is another reason for transferring assets to a QTIP trust rather than directly to a surviving spouse. A trust offers legal protection from creditors and predators that might burden a newly widowed surviving spouse. By establishing a QTIP trust, the financial decisions connected to executor administration of an estate after the death of a decedent eliminates the risk of a probate proceeding that might otherwise prolong distribution of those assets. QTIP trusts firm inheritance arrangements so that any potential argument about rights to an estate are assuaged.
Tax Deferral and Future Benefits
Tax deferral is the important consideration when planning an estate. The tax-deferral aspect of a QTIP trust allows for a surviving spouse to avoid most taxation of those assets until death, at which time the value of the trust is distributed to surviving heirs. Taxation of children and other beneficiaries may not be avoidable, however, depending on level of income and other tax rules pertaining to categories of property. Federal and New York tax laws assign tax to inheritors who are responsible for the payment of taxes owed on the value of those specific assets.
New York Estate Tax Rules
Federal Internal Revenue Service {“IRS”) tax law provides that surviving spouses receive the annual income from a trust. The IRS recognizes QTIP trusts under ERTA-1981 pursuant to IRC § 2056(b)(7) as part of the qualified marital deduction of income tax, even where a surviving spouse has not been given general power of appointment before or after death. Section 955(c) Qualified terminable interest property election of New York’s estate law, Resident’s New York taxable estate follows federal rules to taxation.
Contact a licensed attorney at law experienced in matters of estate planning about how you can include a Qualified Terminable Interest Property trust in your will.
Estate Law Attorney Practice
Ettinger Law Firm is a licensed New York attorney practice specializing in estate planning and probate litigation. Contact Ettinger Law Firm to schedule a consultation about the tax-deferral and estate planning benefits of a Qualified Terminable Interest Property trust.
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