It’s estimated that individuals over 55 years old collectively hold over $122 trillion in wealth, which equates to over 73% of the wealth in the United States. Of that $122 trillion, approximately $53 trillion (or about 31% of the total wealth) is held by individuals aged 70 or older. With trillions of dollars passing to younger generations each year, we’re amid what experts have dubbed the “Great Wealth Transfer.” By 2048, an estimated $105 trillion will have been transferred to younger generations through inheritances. A substantial portion of this wealth will pass to younger generations via qualified terminable interest property (QTIP) trusts. While QTIP trusts defer estate taxes until the death of the surviving spouse, the trust assets will generally be includible in the surviving spouse’s taxable estate and subject to federal estate taxes at that time.
In situations in which the trustee of a QTIP trust has absolute discretion to make distributions to the surviving spouse, the estate tax liability that would otherwise be payable on such assets can potentially be mitigated by making trust distributions to allow the surviving spouse to engage in tax planning. By contrast, in situations in which the trustee’s authority to make distributions is more limited, the potential gift tax consequences of such an approach should be carefully considered.
LINKS
Read “Tax Planning With QTIP Trust Assets” by Eric C. Nelson, Marc Selden, and Troy M. Stackpole, published by Wealth Management. (subscription)