Achieving Tax Benefits through the Inter
Vivos QTIP Trust

Abstract

The use of a lifetime QTIP strategy offers a variety of tax advantages for married couples, including tax-free gifting between spouses; for a married couple of unequal wealth, the ability to take advantage of both spouses’ transfer tax exemptions regardless of who dies first; leverage for a donor spouse seeking to fully use the GST exemption during life without having to pay a current gift tax, where the donor’s GST exemption far exceeds his gift exemption; the flexibility of retaining a secondary life estate by the donor spouse without adverse estate tax consequences or estate tax deferral through a subsequent QTIP election; indirect tax-free gifting through income-tax payments by the donor under the grantor trust rules, effectively leaving more to the remainder beneficiaries; and preservation of GST-exempt QTIP assets by payment of the estate tax with non-QTIP assets—all without the donor spouse having to give up control over ultimate disposition of the transferred property. Even with the new estate tax laws enacted under ATRA 2012, the inter vivos QTIP remains a worthwhile technique, and in certain circumstances may even be the best option (when compared to outright gifting to a spouse or even portability) given the significantly higher unified credit available.

TOPICS: Wealth management, legal/regulatory/public policy