Can a QTIP Trust Help You and Your Spouse Save on Estate Taxes?

Discussing a Document

Creating a QTIP trust is not necessarily difficult, but it is something that must be done carefully to ensure there is no confusion as to your intentions.

One reason many Wisconsin residents create a trust is to reduce their estate’s potential estate tax liability. For example, with a qualified terminable interest property (QTIP) trust, married couples can maximize the potential estate tax deduction for their combined property. Basically, the way a QTIP trust works is that the first spouse to die leaves a “life estate” in his or her property to the surviving spouse. This means the surviving spouse may continue to use and receive income from the deceased spouse’s property. The property itself remains in trust until the second spouse’s death, at which time the trust assets are distributed to a final beneficiary, such as the couple’s children.

Wisconsin Court Holds Father’s Will Did Not Create QTIP

Creating a QTIP trust is not necessarily difficult, but it is something that must be done carefully to ensure there is no confusion as to your intentions. If you did not clearly intend to create a trust, do not expect a judge to make one for you after you die just to help your estate save money on its estate tax bill. The law is not that generous.

Here is a recent case in point. Four adult children attempted to sue the law firm that handled their father’s estate more than 30 years ago for malpractice. The children maintained that their father had intended to create a QTIP trust and the attorneys failed to do so after his death, eventually leaving the children with an estate tax bill of over $260,000.

So, what actually happened? According to the decision of the Wisconsin Court of Appeals for District IV, the children had no case. The children’s father drafted his will in 1967 with the assistance of an estate planning lawyer. The will left the “rest, residue and remainder of my property…to my beloved wife,” from which she was free to “use the income and so much of the principal” as she wanted for the remainder of her lifetime. Upon the wife’s death, anything left from the father’s estate would be equally divided among the four children, with the stipulation that the estate would be placed in trust until the youngest child graduated from college.

The children maintained that the language of the will implicitly direct his estate to establish a QTIP trust upon his death. The Court of Appeals disagreed. As the language cited above indicated, the father left his estate to the mother outright without any restrictions. Indeed, she was free to use up all of the property of her late husband’s estate and leave nothing for the children. The father’s attorneys did not “thwart” his estate planning intentions, as the language of the will did not create a QTIP trust.

Speak With a Madison Estate Planning Lawyer Today

A good estate planning lawyer listens to his or her clients and advises them on the best means of achieving their objectives. The estate lawyers of Krause Donovan Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. Our dedicated attorneys will even make house calls if you are unable to come to our office.

We invite you to request an estate planning consultation with one of our experienced attorneys.

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