Question: How Can I Lower Estate Tax with a Qualified Terminable Interest Property Trust
Answer: Whether in fairy tales, soap operas, or the newspaper, it’s one of the oldest stories in the book: a successful man gets remarried. His grown children are concerned their new “wicked stepmother” will gain control of the estate, cutting them off after the death of their father. Had Snow White and Cinderella’s fathers lived today, they could have insured both an inheritance for their children and the financial security of their new spouses by creating a qualified terminable interest property trust, or QTIP.
Here’s a simplified explanation of how it works: The wealthy husband sets up a trust into which his assets will pass when he dies. The trust is specifically designed so that the income generated by the investments held within it is paid out to the surviving spouse. The spouse does not, however, have the right to spend any of the principal. Instead, upon her death, the principal passes to the surviving children with or without her consent and only then is an estate tax assessed against the property.
