An Uncertain Outcome

A surviving spouse is free to do whatever he or she wishes with inherited assets. Sometimes, decisions that are made create family conflicts.

For instance, if a surviving spouse makes poor investment decisions with the estate assets, there could be very little left for any of the children to inherit. It’s also possible that, after inheriting the estate, the surviving spouse could draw up a new will that excludes stepchildren and favors the spouse’s children from a previous marriage, a new husband or wife, or someone else entirely.

A Protected Inheritance

There is a way to protect both spouse and children. It’s called a Qualified Terminable Interest Property (QTIP) trust. A QTIP trust is often used to make sure that:

• A surviving spouse receives a lifetime income.
• Children from a previous marriage receive the trust’s assets after the spouse’s death.
• The trust assets are professionally managed.

Like any trust, a QTIP trust is a flexible legal arrangement. A trustee holds and manages the assets in the trust for the benefit of its beneficiaries. A QTIP trust provides the surviving spouse with a lifetime income, but he or she cannot change the trust beneficiaries. When the spouse dies, the trust assets go to the beneficiaries named by the trust’s creator.

The Tax Impact

Thanks to the marital deduction, the assets in a QTIP trust are not included in the trust creator’s taxable estate. They are included in the surviving spouse’s estate. However, the federal estate tax exemption amount is rising—and the estate tax is scheduled to disappear in 2010— so the tax impact will be decreasing for a time. (Unless Congress acts to prevent it, the estate tax will return in 2011 at the rates that were in effect in 2001.) Nonetheless, careful planning is essential.

Key Decision

With any trust, the trustee’s effectiveness is a critical success factor. If you decide to create a QTIP trust for your spouse and children, legally, almost anyone can be your trustee. Before you choose, however, be sure you consider a potential trustee’s investment skills, reliability, stability, and availability to serve your family.

In summary, a trust is an extremely flexible financial planning tool, and, as such, can be set up to meet your individual objectives, whatever they may be. Remember, before making any financial decisions, it is best to consult with a qualified advisor or advisors specializing in the field in question.

Protecting your personal and financial security is important to us. There are many financial tools that can be used to help you meet your estate planning needs. Our Security Mutual Life Representatives, working in conjunction with your other professional advisors, can be instrumental in helping you plan for the best financial future for your family. Please contact us if you have any questions or are in need of planning assistance. (Legal Notice)

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