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The lifetime QTIP trust is not just a typical irrevocable trust with some QTIP provisions thrown in.
ANY COMPETENT ESTATE TAX PLANNER is aware that there are two prerequisites for optimal marital deduction planning. The first prerequisite is properly drafted will or trust documents that divide the assets of the first spouse to die into (1) a marital deduction portion (which can pass to the surviving spouse outright or in a trust qualifying for the marital deduction, such as a QTIP trust), and (2) a nonmarital portion to use the predeceasing spouse's unified credit exemption equivalent of $650,000 to $1 million. The nonmarital portion is typically used to fund a by-pass trust (also called a credit shelter trust or family trust) which benefits the surviving spouse and the children without being subject to estate taxes in the surviving spouse's estate.
The second prerequisite is proper ownership of assets. No matter how beautifully the estate planning documents are drafted, nothing is accomplished if the predeceasing spouse dies with insufficient assets to fund the by-pass trust. Therefore, the couple must be advised that each spouse needs to hold a sufficient amount of assets to allow for proper funding. With most couples, this is not a problem.
However, some couples have one wealthy spouse and one poor (or, at least, not so wealthy) spouse, and the wealthy spouse may object to giving assets to the less-wealthy spouse for estate planning purposes. The lesswealthy spouse may be a spendthrift and the wealthy spouse fears the assets will be squandered or seized by creditors. The less-wealthy spouse may be suffering from a terminal illness (which unfortunately too often is the first time when the question of the proper ownership of assets is meaningfully addressed), and there are fears that if the medical insurance is insufficient, the assets will go to pay medical bills. The wealthy spouse may not want to risk losing the assets in the event of divorce. Also, the natural objects of the wealthy spouse's bounty (such as children from a prior marriage) may differ from the less-wealthy spouse's, and the wealthy spouse does not want to give the less-wealthy spouse any power of testamentary disposition over the assets.
In the above scenarios, clearly an outright...