Is a credit shelter trust a QTIP?
The most common technique used by married couples to reduce their estate tax bill and pass more on to their beneficiaries is the use of a Credit Shelter Trust, also referred to as a Bypass or Family Trust, coupled with a Marital Trust, also referred to as a Marital Deduction Trust or QTIP Trust.
What is a QTIP trust with an election?
Qualified Terminable Interest Trust (QTIP Trusts) are an estate planning tool used to maximize a couple’s applicable exclusion amounts while qualifying for the marital deduction. Full property interest transfers to spouses do not trigger most gift or estate taxes under the marital deduction.
Can you make a QTIP election on a bypass trust?
A QTIP election is also able to be made even where no estate tax is due as a result of the decedent’s death, and can also be made as to only a portion of the assets in a bypass trust. This type of QTIP election is known as a “Clayton QTIP election,” which is named after the Clayton Est.
What is the benefit of a QTIP trust?
The QTIP trust serves like a “crystal ball” for the uncertainty of the future in marital trust planning. Not only does it provide for your surviving spouse and other loved ones after your death, but it also offers flexibility to your executor in maximizing your federal estate tax savings.
Is a credit shelter trust revocable or irrevocable?
The trust is revocable, so you can change its terms at any time during your lifetime. It becomes an irrevocable trust when you die, and assets – usually what’s left of the estate tax exemption – go to the trust. Now, the surviving spouse may receive income from the trust’s assets.
How are QTIP trusts taxed?
The QTIP trust also minimizes the decedent’s estate tax, because the trust assets inherited by the spouse are generally not taxed (this is known as the marital deduction). Instead, the estate taxes will be deferred until the death of the surviving spouse when the trust assets are included in their taxable estate.
What is the point of a credit shelter trust?
Credit shelter trust (CST) (also called an AB trust or a bypass trust) is a tool used by well-off married individuals to legally maximize their estate tax exemptions. The strategy involves creating two separate trusts after one spouse passes.
Who needs a QTIP trust?
Do I Need a QTIP Trust? If you or your spouse have children and either one of you has remarried, a QTIP can provide an income to the spouse specified in the Trust. It also ensures that your children will receive the balance of the funds once the remaining spouse passes away.
Who should have a credit shelter trust?
A credit shelter trust is the perfect instrument to ensure a legally married couple passes their full estate tax exemptions on to heirs. Know, however, that this trust is revocable and will not offer any additional tax advantages beyond ensuring two full exemptions.
What is the advantage of a credit shelter trust?
The primary benefit of CSTs is that the surviving spouse can use the trust’s principal and income during the remainder of their lifetime, for example, for medical or educational expenses. The remaining assets then pass to the beneficiaries and are not subject to estate taxes.
Can a credit shelter trust be broken?
Answer: Yes! While trusts created under Wills are irrevocable and cannot be easily modified since the grantor (your husband) is deceased, there is a way to move the assets in your current credit shelter trust to a new trust which will protect the assets for your son. This process is informally known as “decanting.”
Can a credit shelter trust be established in addition to QTIP?
But if desired, a credit shelter trust can be established in addition to the QTIP trust. A QTIP can work great when there is a blended family. For example, if a surviving spouse gets remarried, the assets will not ultimately go to the surviving spouse and the new spouse.
What happens to a QTIP trust upon death?
The QTIP trust is structured to distribute the income, and the surviving spouse merely has a “qualified lifetime interest.” The marital deduction will ensure that the QTIP assets do not count as part of the decedent’s estate. Suppose you choose for property to transfer to a QTIP trust upon your death.
Can a Clayton election be used for a credit shelter trust?
The creation of a credit shelter trust by making a Clayton election can also use the deceased spouse’s GST exemption, which is not available to be ported to the surviving spouse.
How is a lifetime QTIP trust election made?
The lifetime QTIP Trust election is made on a federal gift tax return, Form 709, which is due, with extension, no later than October of the calendar year that follows the year of the gift to the trust is made by the donor-spouse.