Remarried people often include qualified terminable interest property (QTIP) trusts in their estate plans. In essence, the first spouse to die provides lifetime income for the surviving spouse. At the survivor’s death, trust assets pass to beneficiaries named by the first spouse to die, such as children from a previous marriage.
QTIP trusts also can be combined with a prenuptial agreement. Suppose George Adams remarries and transfers assets to a trust. The trusts’s income will go to his second wife Hazel. Under the trust terms, in case of a divorce, the trust assets will be divided as per a prenuptial agreement.
At George’s death (or after a certain number of years, depending on the trust language), the trust will become a QTIP trust – the assets will be out of George’s taxable estate and will ultimately pass to his own children from a prior marriage. Thus, George’s assets will have some protection, in case of a divorce, but he’ll satisfy his estate plan in case of a happy marriage. In at least one private letter ruling, the IRS has approved such an arrangement.