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Financial Literacy - Planning for your heirs
Trusts for every purpose
Most importantly, trusts ensure that the right people end up with your loot.
Planning for your heirs

8 types of trusts for everyday people

Protect birthright in blended family
A Qualified Terminable Interest Property, or QTIP, trust is also a marital trust, qualifying for the unlimited marital deduction. This one is typically used in later marriages or when the creator wants to control where the assets go if their spouse survives them.

"QTIPs avoid the situation where I die, my wife remarries and gives all the money to her new husband, not leaving any for my kids. It avoids unintentional disinheritance," says Edward Gjertsen, president of the Illinois chapter of the Financial Planning Association.

At minimum the QTIP trust must pay out all of the income each year to the surviving spouse to qualify for the 100 percent marital deduction. The spouse that creates the QTIP trust may be as generous as she or he wants to be beyond that, and controls the terms of the dispersal.

Sometimes a co-trustee serves with the surviving spouse to manage assets. The surviving spouse would receive the benefit of the trust during his or her lifetime, but the remaining assets go to the founding spouse's children upon the second spouse's death.

"It's a good vehicle for aging clients so they're not subject to undue influence and being overpowered by outsiders," says Lisa A. Schneider, an estate planning attorney at Gunster, Yoakley & Stewart P.A., in West Palm Beach, Fla. "It requires the consent of a co-trustee to take any money out of it. It acts as a protection mechanism."

Most states allow the eventual beneficiaries to question what the spouse is doing with the assets. Attorney Peter Blatt, president of Blatt Financial Group in Palm Beach Gardens, Fla., illustrates: "Husband passes away, wife decides to take an $8,300 cruise around the world. The children are allowed to question the wife's -- their stepmother's -- use of the assets.

"One drawback is that it ties up the principal of the estate in a trust such that distributions might not be made to the next generation until the spouse passes away," Blatt says.

-- Posted: Nov. 19, 2007
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