We have a few clients with 678 Trusts and have found them to be an interesting estate planning technique.
A 678 trust, also known as a qualified terminable interest property (QTIP) trust, is a type of trust that is commonly used in estate planning. This type of trust allows an individual (the grantor) to transfer property to a trust for the benefit of a surviving spouse, while retaining the right to specify how the property will be distributed upon the surviving spouse’s death.
One of the key advantages of a 678 trust is that it allows the grantor to provide for a surviving spouse while still retaining control over the ultimate distribution of the trust assets. This can be especially important for individuals who want to ensure that their property ultimately goes to their chosen heirs, rather than being distributed according to state law.
Another advantage of a 678 trust is that it can provide a surviving spouse with income and support during their lifetime, while still allowing the grantor to retain control over the trust assets. This can be especially useful for couples who want to provide for a surviving spouse who may not be financially savvy or who may not have the ability to manage complex financial affairs.
In addition, a 678 trust can be a valuable tool for estate tax planning. Since the trust assets are considered to be part of the grantor’s estate for tax purposes, they can be included in the grantor’s estate tax exclusion amount. This means that, if the trust assets are valued at less than the grantor’s exclusion amount, they may not be subject to estate taxes.
It’s important to note, however, that there are some potential drawbacks to using a 678 trust. For example, since the surviving spouse does not have complete control over the trust assets, they may not have access to the funds in the trust if they need them for emergency expenses or other urgent needs. In addition, since the trust assets are considered to be part of the grantor’s estate for tax purposes, the surviving spouse may have to pay taxes on any income they receive from the trust.
Overall, a 678 trust can be a valuable tool for estate planning, allowing individuals to provide for a surviving spouse while still retaining control over the ultimate distribution of their assets. However, it’s important to carefully consider the potential drawbacks and consult with a qualified estate planning attorney before deciding whether a 678 trust is right for you.