Qualified Terminable Interest Property (QTIP) Trust
Categories: Trusts and Estates
You’ve built up a large fortune through the sale of military-trained gorillas as supplemental officers in rural police departments. One of the perks of having tons of money is marrying somebody 20 years younger than you. Now you’re getting up there in years and need to start thinking about passing on your fortune.
You love your spouse. However, you don’t really like her friends. Or her family. Or anyone even remotely associated with her. You want your spouse to live well after you die. However, you still want to control where your fortune goes in the long-term.
Time for a qualified terminable interest property trust. This structure allows you to provide for your spouse after you pass away, without actually giving her the assets involved. The stuff put into the trust generates income, which benefits your spouse while they remain alive. But, when they pass, the assets in the trust get distributed based on your pre-set instructions.
It's like your spouse can use the assets for the rest of her life...but, when she kicks the bucket, the assets revert to the people you wanted to have the stuff in the first place.
Related or Semi-related Video
Finance: What is QPRT?1 Views
and finance Allah shmoop What is a Q Bert No
Q P Artie What is it Qualified Personal resident's trust
and basically it's illegal trust into which you put your
home I eat your residents a k a The are
there in the Cooper thing for all kinds of beneficial
tax reasons Well people create Q parts so that they
can transfer their homes and usually in a tax advantaged
or low taxi kind of way to their kids Loved
ones Or you know members of the Justice League Well
the Golden Ticket in Q Bert is the notion of
discounted cash flow Are discounting future value to be a
lower number in its present value that is the value
of the home is determined by an SS or usually
not Zillow yet and note that the government has a
cap or a maximum dollar value that can be transferred
from one generation to the next without suffering Severe taxes
like that's around 12,000,000 bucks these days So it's in
the interest of those with assets to transfer to make
that value appear to be as low as possible It
should be conceivable that if the home is to be
transferred not today but in a decade or even to
well then that future value of that home could be
re construed as being worth a lot less than it's
worth today and the official legal transfer happens in a
decade or two So it's going to transfer using up
a lot less of that 12 ish $1,000,000 estate tax
minimum ceiling there before you really get taxed And this
all makes sense If you think about real estate in
the context of well normal commercial real estate like apartment
buildings in office buildings that is If someone gave you
an apartment building but told you that you couldn't collect
any rent from it for 18 years than that building
would carry a significant value Discount today compared to what
it would carry were given to the beneficiary this week
because you collect 18 years worth a rent before the
other guys begin collecting So going to Cooper the home
is that essentially given in parts Teo say the beloved
children of the owners and the value of the asset
being transferred gets the benefit of what is essentially present
value or discounted cash flow evaluations such that the government
allows for the home to retain a flat steady UN
inflated valuation while for tax purposes well the value of
the home is discounted Meaningful e In the future for
example the owners of the home might have a nice
little pad with a market value today of well $5,000,000
they're legally allowed to transfer up to 12,000,000 bucks to
their kids with no estate tax If they just transferred
the home today well they'd use up well 5/12 of
their total tax free estate transfer option But the parents
have other assets beyond the house They'd also like to
transfer with no estate tax write like stocks and bonds
and maybe some other real estate Well this is where
the Q part comes in Trying to mitigate much of
the $5,000,000 in assess value of the home by discounting
its transfer value a decade and change into the future
So let's say the transfer value was pegged at 15
years from now The discount rate of 5% per year
Compound ID Will the duration and years in the discount
rate er set by a government formula based largely on
what government bond paper is trading at in a given
time period and the age of the parents and other
expected structural life issues and life expectancy and a whole
bunch of other elements get a bald in that mush
pot of regulatory compiling So the government comes up with
a discount rate or a number so that $5,000,000 house
living inside of a queue pert with children still in
grammar school doesn't need to be traded To them is
an asset for say 15 2030 years Something like that
Big note You must be alive for the entire vesting
period of your Q Bert If you die well basically
then everything reverts back to a fully taxed state and
in some states hi California that fully tax status can
be painful right You don't get the estate waiver discount
minimum there So that home then well we're guessing here
is discounted at a rate of $5,000,000 divided by one
plus point No Five to the 15th Power right 15
years compounded If you do the math there that's roughly
two and change to 20.1 something like that meaning that
the transfer price of that $5,000,000 home to the children
then takes up well instead of 5/12 of the tax
free transfer It takes up something closer to 2/12 of
the tax free estate transfer rights only using up two
of the 12,000,000 Because the discounted or present value of
the home inside of Cuba it has gone from being
worth $5,000,000 current market value to being $5,000,000 divided by
roughly two and change or about two point 4,000,000 in
future assessed estate transfer value Yes that's the fancy phrasing
So yes there are costs in setting up a Q
Bert But usually the benefits of the kid's vastly outweigh
the 10 or 20 grand and change and setting one
of these puppies up especially if the dough is on
one of this kind of big multi $1,000,000 scale and
the ever big benefit Well you can actually live in
the home while you have in theory given it away
assuming you can you know still do stairs Anyway when
you are dealing with a homeowner who has that kind
of cash well there's always a chance he might be 00:04:48.862 --> [endTime] this guy Yeah oh