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Who Needs a QTIP Trust?

Married people with kids from a former relationship, a blended family, tend to set up QTIP trusts. A QTIP trust allows people to leave inheritance to both the surviving spouse and children from a former relationship after death.

Why Do People Set Up QTIP Trusts?

A QTIP trust is important because a blended family has unique needs that are not met with a “traditional” estate plan.

In a traditional estate plan, spouses tend to leave everything they own to each other when they die. In other words, the surviving spouse receives the couple’s entire estate and spends those funds as he or she sees fit. Then, when the surviving spouse dies, any assets that are left go to the couple’s common biological children. Both spouses feel fine with this estate plan because they assume the survivor will treat all children fairly and equally.

A blended family is different. A surviving spouse does not have a legal duty to support or leave an inheritance for stepchildren. After the first spouse dies, the surviving spouse can change the estate plan to disinherit the deceased spouse’s children.

QTIP Trust : Blended Family

How Does a QTIP Trust Work?

With a QTIP trust, you can leave an inheritance for your current spouse and protect the inheritance of your children from a former marriage.

Rather than leave your surviving spouse an outright inheritance, you place all or part of those funds in a QTIP trust. You give the surviving spouse lifetime access to trust income. You also have the option of providing the surviving spouse limited access to trust principal.

By limiting access to principal in this way, you protect your child’s inheritance. You also ensure your surviving spouse has the flexibility to deal with unexpected cash flow needs, such as unemployment or unplanned medical expenses.

QTIP Trust

It’s important to note that the survivor does not have full ownership of trust assets and cannot sell them or give them away. More importantly, the surviving spouse cannot change the beneficiary of the QTIP trust.

Who Should Serve as Trustee of my QTIP Trust?

Since the dynamics in a blended family can sometimes be delicate, many people decide to name a corporate trustee to administer their QTIP Trust. Sometimes, a family member is named as co-trustee or trust protector. This way, the family member can give the corporate trustee insight about family dynamics and priorities, while the corporate trustee brings objectivity, experience, and expertise.

Benefits of a Corporate Trustee

  • Objectivity

    A corporate trustee is fair, objective, and staffed with legal and investment professionals who have a legal duty to act in the best interest of your beneficiaries.

  • Family Harmony

    If you’re like most people, you want your loved ones to get along better after you’re gone, not worse. The loss of a loved one creates strong emotions of sorrow. Plus, administering a trust involves a lot of complex work. The mix of grief and stress can fuel family conflict.

  • Peace of Mind

    Research shows that those who receive an inheritance often lose a large amount due to spending and bad investments. With a QTIP trust administered by a corporate trustee, you can rest assured your hard-earned assets will be preserved, increasing the positive impact your financial legacy will have on your loved ones.

To learn more about Corporate Trustees, see How to Choose a Trustee: 4 Key Considerations.

The Bottom Line

If you’re a member of a blended family, you must plan ahead to ensure you don’t accidentally disinherit your kids from a former relationship. There are other benefits of a QTIP: When you create an estate plan that provides for everyone you love, your entire family can rest easy. Your kids won’t have to worry that a stepparent will spend their inheritance or remarry and leave it to a new spouse.

Trust and Investment products are not federally insured, are not obligations of or guaranteed by the credit union or any affiliated entity, involve investment risks, including the possible loss of principal. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.