In May of this year, new legislation was passed that affects a lot of Minnesota couples. Because most people have lives, they haven’t studied the ins and outs of their particular estate plan. But most people that have drafted a will aimed at avoiding Minnesota and federal estate taxes have a “Qtip” built into their estate plan, and they should know how this legislation affects them.
A Qtip, simply put, is a device that takes advantage of the “marital deduction” when one spouse passes away. A “family trust” shelters up to 1 million dollars tax free, and passes the rest into a “marital share.” The marital share under a Qtip would then have reduced tax liability because 1 million dollars has been shaved off the top. Estate planners prior to this year were using Qtips as nifty tools that still qualified under the estate tax marital deduction and also allowed the deceased spouse to direct how the trust property would be distributed after the death of the second spouse. These were especially useful in the cases of second marriages where the testator wanted to secure the inheritances of children from a first marriage. Qtips are also very useful in protecting assets from creditors of the surviving spouse. But now, according to the Minnesota State Bar Association, the new Minnesota legislation “purports to treat a Marital Share held in a QTIP trust different than a Marital Share distributed outright to the spouse…”
What does all of this mean for you? It means that an estate that would have passed tax free in 2009, could now be subject to over $200, 000 in estate taxes if it misuses the Qtip and marital deduction under this new legislation.[1]
The upshot of all of this is that if you have an estate plan, odds are strong that a Qtip has been built in. And if this is the case, it needs to be revised. I would be happy to work with you on bringing your estate plan current and up to speed with new Minnesota laws.
[1] Drafting Wills and Trust Agreements. Volume 1, Sixth Edition. Minnesota State Bar Association CLE. 2010.
That is some great writing. If you get tired of this lawyer thing you should write for Letterman.
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