• Barry Nelson & Richard Franklin: Inter Vivos QTIP Trusts Could Have Unanticipated Income Tax Results to Donor Post-Divorce
  • July 16, 2015
  • Law Firm: Nelson Nelson P.A. - North Miami Beach Office
  • Testamentary QTIPs are perhaps the most common form of marital deduction trust. The rules for structuring a QTIP trust upon the settlor’s death are generally known and accepted, but the creation of inter vivos QTIP trusts are less common, even though such trusts offer superb estate planning opportunities. While the core principles of testamentary and inter vivos QTIP trusts are exactly the same, inter vivos QTIP trusts require additional considerations that are not as well known to those who may not be using inter vivos QTIP trusts on a regular basis. Numerous articles and presentations have extolled the many benefits of inter vivos QTIP trusts including asset protection, creation of estate tax discounts and ‘Superchargingsm.’ However, estate planners and their clients may not focus on the fact that the donor of an inter vivos QTIP trust may have continuing obligations to pay income taxes on trust capital gains post-divorce, notwithstanding that the donor may have no right to trust distributions or access to trust assets to pay such taxes.