Simplified and flexible planning for couples with the single QTIP trust


Jane Brown

The single QTIP trust has the following advantages:

I. Reducing Capital Gains Taxes

Portability has significantly simplified estate planning for married couples allowing for outright distributions and the transfer of unused estate tax exemptions for use by the survivor.

The tax basis of assets is stepped up to date of death values at the first death and again at the second death, avoiding a capital gains tax. For those who want to achieve this income tax advantage, take advantage of both GST exemptions, preserve the option of sheltering assets from taxation in the survivor’s estate, while also preventing the diversion of assets from intended beneficiaries, creating a QTIP trust for the survivor is the solution. In some cases the single QTIP trust will achieve a better overall tax result than requiring the creation of a Credit Shelter trust and should be considered if the primary objective is to provide for the surviving spouse.

With a Credit Shelter trust, the ultimate beneficiaries will inherit property with built in capital gains that will be subject to a tax upon sale of the assets. If the survivor’s estate is less than their remaining estate tax exemption, the single QTIP trust which will utilize their excess exemption will be a better option in reducing overall taxes.

II. Planning Flexibility

The QTIP trust will be subject to an estate tax at the second death where a Credit Shelter trust will not. An estate plan that utilizes only a QTIP trust, but also provides the trustee with powers to make elections, enables the trustee to consider whether sheltering some of the assets from an estate tax at the second death is advisable. Making this determination can be postponed until the first death rather than at the time the documents are executed. The trustee will consider how much exemption is available to the survivor and the likely size of both the QTIP trust and the survivor’s assets at the survivor’s death.

Because the QTIP trust qualifies for the Marital Deduction, the first spouse’s entire remaining estate tax exemption can be ported to the survivor. That amount will be fixed and not increase. The survivor’s exemption is adjusted for inflation and will increase over time. In determining the potential amount that ultimately will be subject to estate tax, the trustee will consider the survivor’s consumption of assets over their life expectancy and the likelihood of any appreciation. If it is highly likely that there will be assets subject to an estate tax, the trustee may choose to shelter some of them from tax. This can be accomplished by electing to qualify only a portion of the QTIP Trust for the Marital Deduction and utilizing some or all of the first to die’s exemption. The portion that is not “QTIPed” will function like a Credit Shelter trust, and all of the appreciation on the assets held in that trust will be sheltered from estate tax.

Exemptions III. Utilizing Both GST

For couples wishing to provide ultimately for grandchildren, both of their GST exemptions can be utilized with a single QTIP Trust. At the first death, the trustee can divide the trust and make a reverse QTIP election, creating a GST exempt QTIP trust and a Nonexempt QTIP trust. At the second death, the survivor’s trustee can allocate their remaining GST exemption to the Nonexempt QTIP trust making it (or a portion of it) GST exempt.

Death IV. Minimizing Taxes Nonresident

If the assets consist of real property in a state other than Florida, the estate may be subject to a nonresident estate tax. If the nonresident state has a state death tax credit, but does not have a portability provision, but has a state QTIP marital deduction, planning with the single QTIP trust is a good option. This is especially consist of those subjecting the estate to the nonresident tax. The state death tax credit available at the first to die’s death can be preserved by making the state QTIP election over the portion of the trust in excess of the state exemption amount, postponing the state death taxes due until the death of the survivor.

Elective V. Satisfying Share Florida’s

Unless waived, a surviving spouse of a Florida domiciliary is entitled to 30 percent of the deceased spouse’s elective estate. This elective share can be satisfied by providing the spouse with a QTIP trust. This is beneficial for those who wish to satisfy the elective share while meeting the other planning objectives the QTIP trust provides. The value of the QTIP trust for purposes of satisfying the elective share depends upon the terms contained in the trust providing the spouse with trust principal.

Jane W. Brown is a shareholder at Gunster. She has 20 years of experience drafting wills and trusts that preserve clients’ personal objectives, aim to promote family harmony and avoid potential disputes. She utilizes estate and income tax planning techniques. She represents personal representatives and trustees in estate administrations.