Basic Questions About Estate Planning in Washington – What is a QTIP Trust?

The qualified terminable interest property trust, commonly referred to as the QTIP trust, is an advanced estate planning device that is often included in the estate plans of people with blended families. The QTIP trust is, like other trusts, designed to provide specific benefits, but is not suitable for everyone. In this article, we will take a closer look at QTIP trusts and how they work.

QTIP Trusts

Like all trusts, a QTIP trusts allows you to create a legal entity that can own property on behalf of a person or persons, known as beneficiaries, who get to use it. But, unlike many other types of trusts, QTIP trusts are designed to protect two different types of beneficiaries at different times.

Here’s how they work. First the person who establishes a QTIP trust, called a trustor or grantor, decides to transfer property into the trust’s name. The trustor will then name two beneficiaries: the life estate beneficiary, and the final beneficiary. Once the trustor dies, the life estate beneficiary will have the right to use the trust property, or receive income from it, but does not have the right to sell or transfer the property to others.

After the life estate beneficiary dies, the final beneficiary(s) receives the property and effectively becomes the new owner. Unlike the life estate beneficiary, the final beneficiary can dispose of the property as he or she sees fit.

QTIP Trusts and Blended Families

The main reason people create QTIP trusts is because they have a blended family and want to protect both their current spouse and their children from previous relationships. The QTIP trust does this perfectly.

When people with blended families create a QTIP trust, they typically name their current spouse as the trust’s life estate beneficiary, while naming their children as the final beneficiaries. So, if the trustor should die, that person’s spouse will be able to use or benefit from the trust’s property. After the surviving spouse dies, the trustor’s children from a previous marriage then inherit the property as the final beneficiaries. Through a QTIP trust, both the current spouse and the children from previous relationships will receive inheritances from the trustor.

QTIP Trusts and Washington State Estate Taxes

Another benefit conferred by QTIP trusts is that they allow you to exclude the assessment of estate taxes. By transferring a Washington QTIP trust, you can exclude up to two million dollars from the survivors estate. This means your heirs estate tax bill will be eliminated or reduced significantly.

If you’d like more information about QTIP trusts, contact us so we can discuss the issue in more detail.

401(k) contributions up in 2013

By Nick Thornton

Contributions to 401(k) plans were up $13 billion in 2013 from the previous year, according to analysis from Judy Diamond Associates.

The 5 percent year-over-year increase in 2013 represents contributions from employees and employers, and is the most recent year for which data is available.

Employer matches were roughly $96 billion in 2012, while employees contributed $174 billion. In 2013, employer matches hit $101 billion, and employees increased their deferrals to $182 billion.

The increases represent a continuing positive trend since 2011, according to Eric Ryles, managing director of JDA, which is owned by ALM, BenefitsPro’s parent company.

“This indicates both companies and the people who work there are feeling better about the economy overall,” Ryles said. “They feel they have more to invest in their futures.”

Delaware had the highest average employer contributions in 2013, at $3,114. The District of Columbia, Wyoming, Minnesota, and New Jersey rounded out the top five, with average employer contributions in the Garden State coming in at $2,428.

New Jersey led the way with the highest average employee contributions, at $4,436, slightly above California’s average participant deferral of $4,511. Maine, Washington and Delaware rounded out the top five states with the highest average employer contributions.

While total contributions were up in 2013, sponsors established almost 1,000 fewer new plans compared to 2012, according to data mined from Form 5500s.

The 23,056 plans launched in 2013 represented a 5 percent decline from 2012, meaning 434,000 workers had new access to a defined contribution plan. By the end of 2013, new plans held $4 billion in assets.

But only 58 percent of eligible workers took advantage of newly adopted plans. The average employee contribution to the new plans was $1,980 and totaled $861 million. Employers chipped in about $491 million to new plans.

California, New York and Texas, states with the most businesses and people, accounted for one-third of all new plans, adding 7,266.

As a percentage of new plans, Nevada accounted for 6.29 percent of new plans, more than any other state.

What is Medicaid Planning?

Medicaid planning is an aspect of estate planning that a lot of people do not know much about. Even if you know that Medicaid has something provides health care insurance to the poor, those with disabilities, or the elderly, you may not know how this process works, or why it has anything to do with estate planning. To help better explain what Medicaid planning is and why it might become a part of your estate plan, today we are going to take a look at some essential questions surrounding the Medicaid planning process.

What is Medicaid?

Medicaid is a health insurance program jointly operated by the federal government and the 50 state governments that is designed to provide insurance coverage for people with disabilities, low-income children, and seniors. As a part of this coverage, Medicaid pays for the expenses associated with long-term care costs for people with disabilities or anyone who need to reside in an eldercare facility such as a nursing home or assisted living center.

What is Medicaid planning?

Medicaid planning is the process in which people create a plan that will allow them to use Medicaid to pay for long-term care costs as they get older. The planning process can be a little complicated, but it involves some basic steps.

First, those developing a Medicaid plan have to know what they own. Medicaid is only available to those who meet stringent asset eligibility criteria. In other words, if you have too much money, you cannot use Medicaid.

Second, once you know what you own, you then have to determine if there are any options available to you that will allow you to structure your assets in such a way that you can still keep as much as possible while receiving Medicaid. This evaluation is very complicated and can take a lot of time. It also requires the advice and guidance of an expert, which is why crafting a Medicaid plan with the assistance of your estate planning attorney is absolutely essential.

Who needs a Medicaid plan?

Almost anyone can benefit from crafting a Medicaid plan, but those most in need are those who believe they might need long-term care in the immediate or near-term future. Because Medicaid eligibility criteria are so stringent, and because there are significant time limitations associated with them, you have to be able to begin your Medicaid planning efforts as soon as possible. In fact, if you wait too long to begin Medicaid planning, you might be forced to spend some or all of your nonexempt assets before you receive the Medicaid benefits. This will effectively mean that you will have very little, if anything at all, to pass on as inheritances if you are forced to pay for long-term care costs on your own instead of using Medicaid to pay for them for you.