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New Florida Statute Affirms that Inter Vivos QTIPS are Not Self-Settled Trusts

Elaine Bucher
Proskauer Rose LLP - New York Office

Mitchell M. Gaswirth
Proskauer Rose LLP - Los Angeles Office

Albert W. Gortz
George D. Karibjanian
Proskauer Rose LLP - New York Office

Andrew M. Katzenstein
Proskauer Rose LLP - Los Angeles Office

Henry J. Leibowitz
Proskauer Rose LLP - New York Office

David Pratt
Proskauer Rose LLP - Boca Raton Office

Lawrence J. Rothenberg
Lisa M. Stern
Philip M. Susswein
Proskauer Rose LLP - New York Office

August 13, 2010

Previously published on August 2010

The Florida legislature has amended § 736.0505 of the Florida Trust Code, effective July 1st, to explicitly state that an inter vivos qualified terminal interest property ("QTIP") trust will not be considered a self-settled trust, even if the trust agreement provides that assets are to be held in further trust for the benefit of the Settlor if he or she survives his or her spouse.

An inter vivos QTIP trust is often used to allow a richer spouse to pass assets to the poorer spouse so that each spouse can take maximum advantage of their respective estate tax exclusion amount. As long as the transfer is not fraudulent, the inter vivos QTIP trust's assets are not reachable by the Settlor's spouse's creditors. Such trusts are particularly useful in second marriages, since they allow the Settlor to designate his or her children from a previous marriage as the ultimate beneficiaries of the trust's assets.

Often, inter vivos QTIP trusts provide that, in the event the Settlor survives his or her spouse, the trust's assets are to be held in further trust for the benefit of the Settlor. Such an arrangement allows the Settlor to have his or her cake and eat it too, since assets equal to the estate tax exclusion amount pass estate tax-free at the spouse's death, but remain available for the Settlor's support during his or her lifetime.

Prior to this change in law, the possibility existed that Florida (like several other states) would treat such an inter vivos QTIP trust as a self-settled trust, thereby placing its assets within reach of the Settlor's creditors. This, in turn, raised the possibility that the trust would be included in the Settlor's estate by virtue of the creditors' constructive power of appointment.

By confirming that an inter vivos QTIP trust will not be considered self-settled in these circumstances, and that the assets of the trust will only be includable in the estate of the Settlor's spouse, the legislature has sanctioned the use of a valuable mechanism for "equalizing" assets between spouses for purposes of the estate tax exclusion amount.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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