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Marital Deduction, Bypass, & Q-Tip Trusts
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Definition
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Trusts used to minimize death taxes yet provide benefits to a surviving spouse.
A revocable trust or a trust in a will may be used.
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When Does It Apply?
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Husbands and wives with large estates need to consider using these trusts. An
estate-planning attorney should be consulted.
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How Does It Operate?
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Trust splits when first spouse dies.
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Marital deduction.
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Bypass (holds applicable credit amount)
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Qualified terminable interest property
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Advantages/Disadvantages
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Advantages - substantial death taxes can be saved, and surviving spouse
can still receive significant benefits from all trusts.
Disadvantages - can be expensive to set up, implement and manage.
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Estate/Gift Tax Implications
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Death taxes can be avoided at first spouse's death but will be incurred at
second spouse's death except on assets in the bypass trust.
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Income Tax Implications
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Trustee must file a fiduciary income tax return. Income is taxed to
beneficiaries when distributed.
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Other Considerations
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Children or other individuals can receive income or property after surviving
spouse dies.
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