Recent changes occurred to the New York estate tax legislation in 2019 concerning Qualified Terminable Interest Property (QTIP).
The following will focus on what a QTIP trust is, the benefits of a QTIP trust, and a summary of the estate tax legislation enacted in 2019 related to QTIP trusts.
What is a QTIP?
A QTIP is an irrevocable trust that ensures the surviving spouse is taken care of during the remainder of their life. Once the surviving spouse passes, beneficiaries determined by the person who set up the trust will receive what is left. This irrevocable trust cannot be modified, amended, or terminated without the permission of the beneficiary or beneficiaries.
Benefits of a QTIP
This kind of trust is especially useful for an individual that has been married more than once. The individual may want to make sure that the current, surviving spouse continues to have an income in the event of the grantor’s passing while also ensuring that beneficiaries, such as children from other marriages, will receive what is left when the living spouse passes. If the surviving spouse remarries, the assets will not transfer to the new spouse because the surviving spouse never assumes the power of appointment over the principal.
Another benefit of setting up a QTIP trust is that this trust can limit applicable death and gift taxes. The funds that are provided to the surviving spouse as an income from the trust qualify for marital deductions. This means that the total value of the trust is not taxable after the spouse who set up the trust dies but is taxable after the surviving spouse passes. The liability is passed on to the named beneficiaries of the remaining assets within the trust.
New York estate tax legislation enacted in 2019 regarding QTIP trusts
A summary of the estate tax legislation enacted in 2019 states the following:
“The Tax Law now requires a New York QTIP election to be made directly on a New York estate tax return for decedents dying on or after April 1, 2019. Any election made under this subsection is irrevocable. In addition, the value of any QTIP for which a New York marital deduction was previously allowed must be included in the surviving spouse’s New York gross estate, whether the QTIP election was made on the transferring spouse’s New York estate tax return or on a federal pro forma return if an actual federal return was not otherwise required.”