QTIP Trusts, Irrevocable Life Trusts, and Credit Shelter Trusts

Qualified Terminal Interest Property Trust (QTIP Trust)

Features & Use
A "marital deduction trust" often used by remarried individuals; allows donor to provide income to second spouse while preserving assets for children of first spouse.

Advantages
Control of assets after death.
Provides for spouse and children from a different marriage.

Disadvantage
Assets taxed in estate of surviving spouse.

Irrevocable Life Insurance Trust

Features & Use
Unique trust keeps proceeds from a life insurance policy out of donor’s estate and provides beneficiaries with liquidity to pay estate taxes.

Advantages
Estate tax advantages.
Generation-skipping tax advantages.

Disadvantages
Possible gift and estate taxes if there is not sufficient advanced planning.
Death benefits paid within 3 years of date policy transferred to trust included in donor’s estate.

Credit Shelter Trust

Features & Use
Created under a living trust or by will; reduces estate taxes at death of surviving spouse, provides for both surviving spouse and heirs through use of unified estate and gift tax credit.

Advantages
$1.2 million can pass tax-free to heirs.

Disadvantage
May not provide sufficient income for surviving spouse.