Types of Marital Deduction Trusts

Coleman Law Firm

Federal tax law includes a provision for a marital tax deduction. This deduction may be used by a surviving spouse to receive gifts or bequests from their deceased spouse without the imposition of the estate tax. However, when the property in the estate transfers to subsequent beneficiaries, typically the couple’s children, upon the death of the surviving spouse, the estate tax is then imposed. In this way, the law ensures that property that’s not taxed because of the marital deduction is subject to the estate tax in the estate of the surviving spouse. At least, the property that remains at that time is taxed later, according to a Tampa estate planning lawyer.

Common Types of Marital Deduction Trusts

There are two primary types of marital deduction trusts: general power of appointment trusts (GPOA) and qualified terminable interest trusts (QTIP).

For the purposes of the marital deduction, an outright bequest or gift is not necessary. A trust alone qualifies on a federal estate tax return.

With a GPOA trust, the entire trust is included in the surviving spouse’s estate, so it is fairly cut and dry. A Tampa estate planning lawyer is still needed to ensure the trust is managed properly.

QTIP trusts tend to be a little complicated. With this type of trust, the surviving spouse doesn’t have to be given power of appointment for property to qualify for the marital deduction. The spouse does not have life-long power to appoint trust property to anyone else, either. Rather, the surviving spouse receives income from the assets of the trust for the rest of his or her life. The principal, however, is left to other parties, typically the couple’s children.

A QTIP trust, then, takes advantage of the marital deduction, provides income for the surviving spouse and controls the eventual beneficiaries. It allows the first spouse to ultimately control the way in which property is eventually dispersed when his or her spouse dies. Due to the complicated nature of this type of trust, the assistance of a Tampa estate planning lawyer is strongly recommended.

As any Tampa estate planning attorney can attest, there’s one significant disadvantage to using a QTIP trust: conflict between the surviving spouse and beneficiaries regarding issues like tax strategy, trust administration, investment strategy and the adequacy of accountings.

Contact a Tampa Estate Planning Attorney Today

Setting up the appropriate trust to take advantage of the marital deduction is complicated. The assistance of an experienced Tampa estate planning lawyer is crucial. Contact Coleman Law Firm at 727-461-7474 now.

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