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Protecting Your Children’s Inheritance


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You may be divorced twice and on your third marriage (so far so good), but if you die first, your spouse and stepchildren may end up spending your rightful heir’s inheritance – unless you plan ahead.

Families are more complicated than they used to be. With so many people divorced and remarried, a family gathering often involves people you’ve never seen before – and explanations to identify them require a degree in genealogy studies to understand. Case in point: Your second wife brings a four-year-old over to meet your 21-year-old son from your first marriage and says to him, “This is your step-Aunt Alice. She’s my half sister from my mom’s third marriage.”



In today’s world, remarriage is often part of life and, as such, can impact an estate plan and the status of children’s future inheritance. For example, if you have children from a previous marriage and your current spouse survives you, he or she could be the one who decides who’ll next inherit your assets.

A Will May Not Be a Solution
If you leave your estate directly to your spouse, your will cannot control the choices your spouse makes in the future. Even if your spouse’s current will names your natural children as heirs, nothing prevents a future change. And once a spouse inherits your estate, he or she will have an unlimited legal right to choose other heirs.


How to Provide for Your Children and Your Spouse
You can protect your children’s inheritance as well as provide for your spouse by setting up a Qualified Terminable Interest Property trust (QTIP). A QTIP trust will provide your spouse a lifetime income after your death. And after the death of your spouse, your children inherit the trust’s assets. The trust will also qualify for estate tax deferral via the unlimited marital deduction if your spouse is a U.S. citizen.

How a QTIP Trust Works
With a QTIP trust, assets are transferred to a trust either during your lifetime or at your death. The trustee administering the trust has a legal responsibility to invest the assets and to pay lifetime income to your spouse from the trust’s investment earnings.


Upon your spouse’s death, the trust is transferred to the beneficiaries – your children – thus assuring your spouse a lifetime income but paying the principal to your children. For tax purposes, the trust is usually considered a transfer to your spouse if your spouse is a U.S. citizen, and taxes are deferred under the unlimited marital deduction. (With this deduction, QTIP assets will be included in your spouse’s gross estate for tax purposes.)

Beyond providing for your spouse and your children, a QTIP trust can provide another benefit – experienced investment management for your assets. This is especially true if you choose a trustee who’s also an investment professional.


Because of the impact that estate taxes can have, a QTIP requires careful planning with your tax and legal advisors. Be sure to consult both if you’re considering this type of trust.

Writer Thaddeus Toal is an independent financial planner based in Annapolis, Md., and can be reached at (410) 349-8030 or by e-mail at [email protected]

This article doesn’t constitute tax or legal advice. Consult your tax or legal advisor before making any tax-related or legally related investment decisions. This article is published for general informational purposes and isn’t an offer or solicitation to sell or buy any securities or commodities. Any particular investment should be analyzed based on its terms and risks as they relate to your specific circumstances and objectives.


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