In a remarriage, a qualified terminable interest property (QTIP) trust can be a valuable estate planning tool. After the first dies, his assets go into the trust. All the income from the trust goes to the surviving spouse, until her death, and the trustee can distribute other money to the surviving spouse, in case of need.
After the death of the second spouse, the remaining trust assets pass to beneficiaries named by the first spouse to die, who might be his children. With this approach, assets in a QTIP trust are subject to estate tax at the survivor’s death, not at the death of the first spouse.
However, the children of the first-to-die spouse may have to wait for decades to get their inheritance. This can lead to disagreements over how the trust fund is invested and whether principal should be distributed.
Life insurance can help keep peace among the survivors. The children of the first-to-die spouse can be the policy beneficiaries so they’ll have a cash payoff while the surviving spouse benefits from the QTIP trust.