When considering your estate and planning for the future, there are different scenarios that come into play. One is considering how you and your spouse will plan after the American Taxpayer Relief Act went into effect. It was written to make things easier for everyone; however, it has complicated matters for those who are married.
If you are married and have no children, there are a couple of potential ideas worth consulting a professional about. Qualified terminable interest property (QTIP) can make sure your surviving spouse has enough assets and financial stability to last throughout her entire life.
After the death of the first spouse, the QTIP would naturally and legally flow to the second spouse. Having this in place gives your professional leeway to assist the surviving spouse with his or her future.
A portability election after the death of the first spouse is another, less ideal, option. The reason it is not the best idea is because it leaves the surviving spouse exposed to creditors of the first spouse, while a QTIP protects the survivor from them.
If you have minor children or adult children who are dependent on you, then you will want to consult with a professional to choose a credit shelter-based plan with a marital QTIP. It is a good choice because it gives some tax protection, offers protection from the first spouse’s creditors and allows access to the QTIP if the second spouse becomes incapacitated.
For those who have independent adult children, the choice is somewhat similar to having minor children. The whole estate is put into a QTIP with the understanding that it would be broken up into two or more QTIPs if necessary.
The good thing about this is that it is a simpler method of estate planning because it involves one fewer account. It also protects the survivor against possible creditors from the first spouse. The one negative idea is that it doesn’t allow the children access to the assets; however, if the children are adult and independent, this may not matter overly much.
A financial or legal professional will, of course, be able to provide additional information on this subject.
Source: Forbes, “Estate Plan Recommendations for Married Couples After ATRA” Lewis Saret, May. 20, 2014