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.

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Finance: What is QPRT?1 Views

00:00

and finance Allah shmoop What is a Q Bert No

00:06

Q P Artie What is it Qualified Personal resident's trust

00:11

and basically it's illegal trust into which you put your

00:13

home I eat your residents a k a The are

00:17

there in the Cooper thing for all kinds of beneficial

00:19

tax reasons Well people create Q parts so that they

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can transfer their homes and usually in a tax advantaged

00:25

or low taxi kind of way to their kids Loved

00:28

ones Or you know members of the Justice League Well

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the Golden Ticket in Q Bert is the notion of

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discounted cash flow Are discounting future value to be a

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lower number in its present value that is the value

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of the home is determined by an SS or usually

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not Zillow yet and note that the government has a

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cap or a maximum dollar value that can be transferred

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from one generation to the next without suffering Severe taxes

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like that's around 12,000,000 bucks these days So it's in

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the interest of those with assets to transfer to make

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that value appear to be as low as possible It

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should be conceivable that if the home is to be

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transferred not today but in a decade or even to

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well then that future value of that home could be

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re construed as being worth a lot less than it's

01:11

worth today and the official legal transfer happens in a

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decade or two So it's going to transfer using up

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a lot less of that 12 ish $1,000,000 estate tax

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minimum ceiling there before you really get taxed And this

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all makes sense If you think about real estate in

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the context of well normal commercial real estate like apartment

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buildings in office buildings that is If someone gave you

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an apartment building but told you that you couldn't collect

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any rent from it for 18 years than that building

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would carry a significant value Discount today compared to what

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it would carry were given to the beneficiary this week

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because you collect 18 years worth a rent before the

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other guys begin collecting So going to Cooper the home

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is that essentially given in parts Teo say the beloved

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children of the owners and the value of the asset

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being transferred gets the benefit of what is essentially present

01:59

value or discounted cash flow evaluations such that the government

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allows for the home to retain a flat steady UN

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inflated valuation while for tax purposes well the value of

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the home is discounted Meaningful e In the future for

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example the owners of the home might have a nice

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little pad with a market value today of well $5,000,000

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they're legally allowed to transfer up to 12,000,000 bucks to

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their kids with no estate tax If they just transferred

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the home today well they'd use up well 5/12 of

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their total tax free estate transfer option But the parents

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have other assets beyond the house They'd also like to

02:32

transfer with no estate tax write like stocks and bonds

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and maybe some other real estate Well this is where

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the Q part comes in Trying to mitigate much of

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the $5,000,000 in assess value of the home by discounting

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its transfer value a decade and change into the future

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So let's say the transfer value was pegged at 15

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years from now The discount rate of 5% per year

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Compound ID Will the duration and years in the discount

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rate er set by a government formula based largely on

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what government bond paper is trading at in a given

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time period and the age of the parents and other

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expected structural life issues and life expectancy and a whole

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bunch of other elements get a bald in that mush

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pot of regulatory compiling So the government comes up with

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a discount rate or a number so that $5,000,000 house

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living inside of a queue pert with children still in

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grammar school doesn't need to be traded To them is

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an asset for say 15 2030 years Something like that

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Big note You must be alive for the entire vesting

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period of your Q Bert If you die well basically

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then everything reverts back to a fully taxed state and

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in some states hi California that fully tax status can

03:37

be painful right You don't get the estate waiver discount

03:39

minimum there So that home then well we're guessing here

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is discounted at a rate of $5,000,000 divided by one

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plus point No Five to the 15th Power right 15

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years compounded If you do the math there that's roughly

03:50

two and change to 20.1 something like that meaning that

03:53

the transfer price of that $5,000,000 home to the children

03:57

then takes up well instead of 5/12 of the tax

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free transfer It takes up something closer to 2/12 of

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the tax free estate transfer rights only using up two

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of the 12,000,000 Because the discounted or present value of

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the home inside of Cuba it has gone from being

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worth $5,000,000 current market value to being $5,000,000 divided by

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roughly two and change or about two point 4,000,000 in

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future assessed estate transfer value Yes that's the fancy phrasing

04:24

So yes there are costs in setting up a Q

04:26

Bert But usually the benefits of the kid's vastly outweigh

04:28

the 10 or 20 grand and change and setting one

04:30

of these puppies up especially if the dough is on

04:33

one of this kind of big multi $1,000,000 scale and

04:36

the ever big benefit Well you can actually live in

04:38

the home while you have in theory given it away

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assuming you can you know still do stairs Anyway when

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you are dealing with a homeowner who has that kind

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of cash well there's always a chance he might be 00:04:48.862 --> [endTime] this guy Yeah oh

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