Stepping into a second marriage brings with it a unique blend of hope, happiness, and, inevitably, complexity. Amidst the joy of newfound love, there often lay a multitude of intricacies encompassing not just the relationship of the newlyweds, but the futures of their children. In the realm of estate planning, these factors take on an even more profound significance, as it intertwines the aspirations of and responsibilities for other children outside of your current marriage. There is a line, one which must be carefully walked, between ensuring financial security and maintaining familial harmony. Estate planning can be exceptionally difficult for those who have blended family structures because there are many additional factors that one must consider – from the complexities of their own relationship to the financial future of children from other marriages. Thankfully, there are steps that you can take to secure your future and gain control over your assets’ journey over multiple generations.
QTIP Trusts –– What They Are and How They Work
Creating a qualified terminable interest property trust (“QTIP trust”) is one of the most foolproof ways to ensure that all parties you believe are entitled to your assets get their fair share. A QTIP trust allows you to name a second spouse as a life beneficiary of the property in your trust and name another individual as the final beneficiary. By creating a trust this way, you allow your second spouse to benefit from the property but deprive them of the right to sell it or leave the property in the trust to anyone else. This ensures that after your second spouse passes away, your children are left with the property you intended to give them. This type of trust gives you peace of mind that all of your loved ones will receive the maximum benefits from your assets.
When setting up a QTIP trust, there is a large spectrum of rights that you can give your second spouse. You do not necessarily have to name your spouse as the trustee of the trust, and you can restrict their access to the funds enclosed in the trust. For example, you may own a house with your spouse that you would like for your children to inherit. You may put that property in the trust, stating that your spouse may continue to live there and make use of it, but they cannot sell it. You can even go as far as to stipulate who receives income from the house in the case that it is rented. Additionally, a QTIP trust is used when a surviving spouse is given the right to earn income on the trust but not allowed to directly access the principal of the trust. In this case, this means that the principal of the trust is reserved for the children from an external marriage, but the spouse is still allowed to benefit financially from the funds enclosed in the trust. This particular trust setup is typically used because it qualifies for unlimited marital deduction, meaning that the spouse receives income from the trust without owing taxes on what they earn. QTIP trusts serve as a bridge between the desire to provide for a surviving spouse and the wish to ensure that assets ultimately pass to children from a previous marriage. It is a tool that allows individuals to navigate the complex emotional and financial landscape of second marriages while maintaining control over the distribution of their estate.
Estate planning is already a difficult process, and with additional marriages comes a plethora of additional considerations. In order to ensure the happiness of all parties and minimize familial conflict after your passing, it is important that you carefully curate an estate plan that keeps everyone’s best interests at heart. Creating a QTIP trust is just one of the many ways that you can go about leaving assets to your spouse and children. There are also irrevocable life insurance trusts (ILIT), which keep life insurance out of your taxable estate, and qualified personal residence trusts (QPRT), which allow a spouse to live in a residence for a given amount of time and then pass it down to the children, and revocable living trusts, which allow a spouse to freely use assets while ensuring that the remainder is passed down according to your wishes.
Estate planning is essential in any situation, but especially in a second marriage. When there are so many different parties with different interests at play, it is important to manage expectations and control who gets what. If you neglect to create an estate plan, you are risking the fact that your children from a different marriage will not receive anything. If you fail to update your estate plan from a previous marriage, you are risking the fact that your spouse will not benefit from your estate. When navigating this process, it's recommended that you have a knowledgeable and innovative attorney by your side. If you have any further questions or are ready to start your estate planning journey, please contact the Law Office of Inna Fershteyn at (718) 333–2394.