What is a terminable interest and what are the exceptions to the terminable rule?
The well-known exceptions to the “terminable interest” rule include both qualified terminable interest property (“QTIP”) trusts and general power of appointment marital trusts, both of which qualify for the gift tax marital deduction.
What is terminable interest?
A “terminable interest” in property is an interest which will terminate or fail on the lapse of time or on the occurrence or the failure to occur of some contingency. Life estates, terms for years, annuities, patents, and copyrights are therefore terminable interests.
What is a qualifying income interest for life?
A qualifying income interest for life is one where: The surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property; and.
Can you put a house in a QTIP trust?
Qualified Terminable Interest Property Trust (QTIP) You can place property in a QTIP, also place restrictions on its distribution to your spouse, and still receive the marital deduction as long as your spouse has a lifetime income interest in the property.
Is a dynasty trust revocable or irrevocable?
Dynasty trusts allow wealthy individuals to leave money to future generations, without incurring estate taxes. Dynasty trusts are irrevocable and their terms cannot be changed once funded.
What is the purpose of a qualified personal residence trust?
A qualified personal residence trust (QPRT) is a specific type of irrevocable trust that allows its creator to remove a personal home from their estate for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary.
Which of the following is not terminable interest?
Terminable interest includes life estates, patents, interest in the property, etc that maintain and control over the trust assets and helps the surviving spouse. An ownership interest in a life insurance policy will not be included in terminable interest because that does not qualify for the marital deduction.
Which of the following are requirements that must generally be met for property to qualify for the estate tax marital deduction?
To qualify, the following conditions must be met: (1) the surviving spouse must be entitled to all of the income from the designated property payable at least annually for Page 3 Chapter 6 39 his (her) life (this income interest is known as a “qualifying income interest”); (2) a QTIP interest in property not placed in …
Who pays the estate tax on a QTIP trust?
QTIP trusts are put to use in estate planning and are especially useful when beneficiaries exist from a previous marriage but the grantor dies before a subsequent spouse does. With a QTIP, estate tax is not assessed at the point of the first spouse’s death, but is instead determined after the second spouse has passed.
Can surviving spouse be sole trustee of QTIP trust?
QTIP trust assets are subject to estate tax at the death of the surviving spouse. Your executor or trustee must elect QTIP treatment for the trust. Depending on the principal invasion standard and nature of assets in the trust, the surviving spouse may be able to act as her own trustee over the QTIP.
Is a dynasty trust a good idea?
Is a Dynasty Trust a Good Idea? A dynasty trust is a great option for families that are seeking to transfer wealth from generation to generation. If you have a sizable estate and wish to transfer wealth without triggering certain estate-planning taxes, a dynasty trust could be a great option.
Which is qualified terminable interest Property Trust ( QTIP )?
The Qualified Terminable Interest Property (QTIP) Trust was a creation of ERTA-1981 pursuant to IRC § 2056 (b) (7) which qualifies for the marital deduction, even if the surviving spouse is not given a general power of appointment during life or at death.
Can a terminable interest be purchased with estate assets?
Thus, if the decedent directs the executor to purchase a terminable interest with estate assets, the terminable interest acquired will not qualify as qualified terminable interest property.
When is estate tax assessed on a QTIP?
With a QTIP, estate tax is not assessed at the point of the first spouse’s death, but is instead determined after the second spouse has passed. A QTIP is established by making a QTIP election on the executor’s tax return.
Can a spouse appoint beneficiary to a QTIP trust?
In a marital gift trust, the estate is split in two, with one section put in a trust fund and the second given directly to the surviving spouse; just like with a QTIP, there is no estate tax charged against either share, but unlike with a QTIP, the surviving spouse can typically appoint beneficiaries of the trust following their death.