21 Mar Planning for Married Couples: PART 2 – Asset protection
Strategy for Asset Protection: Inter Vivos (Lifetime) QTIP Trusts:
For married couples who are concerned with asset protection, non reciprocal inter vivos QTIP trusts may be considered. Using this planning technique, each spouse creates and funds an inter vivos QTIP trust for the benefit of the other spouse. At the death of the first spouse, assets remaining in his or her QTIP trust pass to a credit shelter trust for the benefit of the surviving spouse (the original donor of the QTIP trust) up to the applicable exclusion amount. The balance, if any, may pass either outright or to a testamentary QTIP trust for the surviving spouse. (2)
During the lifetime of each spouse, assets placed in an irrevocable (QTIP) trust by one spouse for the benefit of the other spouse are exempt from the creditors of the donor and donee spouse, as long as at the time the inter vivos QTIP trusts are created the transfers are not considered a fraudulent conveyance. See Section 726.105 of the Florida Statutes.
Moreover, under Section 736.0505(1) of the Florida Statutes, at the death of the first spouse, assets placed in trust for the benefit of the surviving spouse are deemed to be contributed by the deceased spouse (the beneficiary of the inter vivos QTIP trust), and not the surviving spouse who originally created the trust. This, in effect, allows the lifetime beneficiary of the QTIP trust to create a spendthrift trust for the benefit of his or her surviving spouse with funds initially contributed by the surviving spouse.
In this way, we can fully utilize each spouse’s applicable exclusion amount, as well as provide creditor protection during the couple’s joint lifetimes, which will continue throughout the lifetime of the surviving spouse.
Couples with Non-Taxable Estates:
With the advent of portability, for estates that are not expected to exceed twice the applicable exclusion amount at the death of the surviving spouse, it may be preferable for the assets in the lifetime QTIP trust to pass to a testamentary QTIP trust for the benefit of the surviving spouse. In this way, assets placed in a testamentary QTIP trust will be included in the estate of the surviving spouse, resulting in a second step up in basis at the death of the surviving spouse.
Couples with Taxable Estates:
For couples whose combined estates are expected to exceed twice the applicable exclusion amount at the death of the surviving spouse, it may be preferable to forego a second step up in basis, and permit the assets to pass to a credit shelter trust to avoid any additional federal estate taxes should the property appreciate in value prior to the death of the surviving spouse. Moreover, additional income and estate tax benefits may be achieved by structuring both the inter vivos QTIP trust and the credit shelter trust as grantor trusts for federal income tax purposes. (3)
Need more information on estate planning? Whether you are planning for yourself or a family member, The Elder Law Center of Mondschein and Mondschein, P.A. is here for you. Please contact us using this online form here, or call our office at 305.274.0955 to schedule a free phone consultation.
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(1) Alan S. Gassman and Erica G. Pless, Florida Supreme Court Cases Confirm Tenancy by Entireties in Personal Property, November, 2011
(2) Barry A. Nelson, Asset Protection & Estate Planning – Why Not Have Both?, Chapter 15, pages 4-19, 46th Annual Heckerling Institute on Estate Planning, January, 2012
(3) Mitchell M. Gans, Jonathan G. Blattmachr, and Diana S.C. Zeydel, Supercharged Credit Shelter Trust, 21 Probate & Property 52-64 (July/August 2007)