Considerations When Choosing a Trust Beneficiary for IRAs and 401(k)s, A Guide to Death, Estate, and Inheritance Taxes, Here Are the Different Taxes That Are Due After Someone's Death, The Generation-Skipping Tax and How to Avoid It, $1.25 million will go into the B Trust - exempt for state and federal purposes, $4 million will go into the C Trust - state QTIP only, exempt for federal purposes, $1 million will go into the A Trust - state and federal QTIP. Hence, the 1st-to-die spouse can be sure that his beneficiaries will receive the property. If the grantor gives the QTIP property during his life, then the grantor must make the election to treat the property as QTIP property. When the surviving spouse dies, then the estate tax due on the QTIP property is paid out of the trust corpus. Consult with an experienced estate planning attorney to determine if an A/B/C Trust is proper in your circumstance. WHOM IS IT FOR? The surviving spouse will then be able to leave an amount equal to their own federal estate tax exemption to children or other beneficiaries. Thus, the C Trust effectively defers the payment of both Tennessee and federal estate taxes on the gap of $4 million between the Tennessee and federal estate taxes until after the surviving spouse dies, but still preserves the entire $5.25 million federal estate tax exemption for the next generation. Manage money better to improve your life by saving more, investing more, and earning more. all the trust income must be distributed to her at least annually during her lifetime. To the extent that this website is deemed an “advertisement,” Attorneys advertise only in California and do not seek to represent a person based solely on that person’s visit to this website. : Married couples with estates that are clearly above the estate tax exemption amount (currently $5 million, but will decrease to $1 million on January 1, 2013 if Congress and the President fail to act). QTIP trust is a type of trust and an estate planning tool used in the United States. A qualified terminable interest property (QTIP) trust allows an individual, called the grantor, to leave assets for a surviving spouse and also determine how the trust's assets are split up … Any amount of the decedent's share above the exemption is funded to the other trust (i.e., usually Trust "C"). No representation is made that the quality of the legal services provided by Attorneys exceeds that provided by other lawyers. How to Make the Portability Election for Estate Taxes, Learn About the Federal Estate Tax Law and the Changes Made in 2015, Portability of Estate Tax Exemption for Surviving Spouses. However, an A/B/C Trust is for married couples with estates that are clearly above the estate tax exemption amount. If, however, Joe and Mary's estate plan is drafted to take advantage of the ABC Trust system, then instead Joe's estate will be divided up as follows: Thus, the ABC Trust plan will result in no Tennessee or federal estate taxes being due at the time of Joe's death. Under IRC §2652(a)(3), the executor can also select a special or reverse QTIP election on Schedule R — Generation-Skipping Transfer Tax of the estate tax return, which can be made independently of the other elections, that allows the donor to use his personal exemption for the generation-skipping transfer tax (GSTT) for property in the trust whose final beneficiaries are in the 2nd or a later generation. As illustrated above, the B Trust will hold the Tennessee state estate tax exemption of $1 million, the C Trust will hold the difference between the Tennessee estate tax exemption and federal estate tax exemption of $4 million, and the A Trust will hold what's left.

Any type of property can be put in a QTIP trust, but the surviving spouse has a right to demand that non-income producing property be sold to buy income-producing property.

As you can tell, A/B/C Trusts are much more complex than the Standard Trusts we prepare. This allows the use of the first-to-die spouse's GSTT exemption for the trust property, while also allowing the surviving spouse's GSTT exemption to be used for her own property. After the first spouse's death, Trust "B" and Trust "C" will each usually be required to file their own income tax returns. The net income of these trusts generally is payable to the survivor and passes through to the survivor for income tax purposes.

Attorneys do not intend links on this website to be referrals or endorsements of the linked entities. A QTIP trust is often used in order to take advantage of the marital deduction and still control the ultimate distribution of the assets at the death of the surviving spouse. all income from the trust must be distributed to the surviving spouse at least annually; the spouse can demand that non-income producing property be converted to income-producing property; no person has the right to appoint QTIP trust property to anyone but the surviving spouse. A qualified terminal interest property (QTIP) trust supports a surviving spouse, thus qualifying for the unlimited marital deduction, while ensuring that the remaining trust property is distributed according to the decedent spouse's instructions. A QTIP trust, otherwise known as an ABC trust, allows the deceased spouse's property that is over the federal estate tax exemption amount to be transferred to a separate trust — usually called Trust C — that gives the surviving spouse a life estate in the property of Trust C while delaying payment of the estate tax on the property until the surviving spouse dies. What Does the C Trust in ABC Trust Planning Do? Alternatively, in a typical ABC Trust design, the excess of assets over the deceased spouse’s estate tax exclusion will instead be assigned to the “C” Trust (also referred to as a marital trust, qualified terminable interest property (“QTIP”) trust, or marital deduction trust). To view a short video by Long Beach Estate Planning Attorney John T. Anderson on the different types of trusts prepared by The Law Office of John T. Anderson, Click Here. A QTIP trust, otherwise known as an ABC trust, allows the deceased spouse's property that is over the federal estate tax exemption amount to be transferred to a separate trust — usually called Trust C — that gives the surviving spouse a life estate in the property of Trust C while delaying payment of the estate tax on the property until the surviving spouse dies. Hence, if the value of the property in trust C increases substantially, then more estate tax must be paid then would otherwise be the case if the property was distributed directly to the ultimate beneficiaries when the 1st spouse died. If the grantor wants to transfer the property at his death through a trust, then the grantor must prepare the QTIP trust document, but to delay payment of the estate tax on the QTIP property, the executor of the will must elect it on the federal estate tax return by listing the property on Schedule M, Bequests, etc., to Surviving Spouse, which is part of the Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return and deducting its value from the deceased spouse's taxable estate. Attorneys maintain one office located in Long Beach, California. However, an A/B/C Trust is for married couples with estates that are clearly above the estate tax exemption amount. Sending e-mails to [email protected] or other e-mail addresses associated with attorneys or staff at The Law Office of John T. Anderson does not create, and receipt does not constitute, an attorney-client relationship.

No federal estate tax will be due at the time of Joe's death. It uses up the deceased spouse's federal estate tax exemption. As noted above, the Marital Trust paid all its income to the surviving … If the collective total assets of a couple exceed the threshold for Death Taxes, an AB or QTIP Trust is probably the best type of Living Trust for the couple.
Although attorneys John T. Anderson, Lisa R. Norman, Erin M. Anderson, and John T. Anderson, Jr. (“Attorneys”) intend that this website be correct, complete, and up-to-date, they do not guarantee it to be. The reverse QTIP election allows the QTIP property to be treated as the decedent spouse’s property for GSTT purposes, but still qualify for the marital deduction. The reverse QTIP election can only apply to a separate QTIP trust, so if the amount qualifying for the marital deduction exceeds the GST exemption, then 2 QTIP trusts must be created, one for the GST exemption, and the other for the remaining marital deduction. The Marital Trust held the amount of the husband’s property in excess of the exemption amount.