My 1.12.22 Steve Leimberg Newsletter: Two 2022 Pluses for Inter-Vivos QTIP Trusts Compared to SLATs

I continue to believe the inter-vivos QTIP marital trust is one of the best options for tax / asset protection trust planning, especially during 2022 in view of the unsettled uncertainty about Congress reducing the estate / gift exemption. Click here for my 1.12.22 Leimberg newsletter. You are welcome to print, pdf, and forward this newsletter to anyone else. Please also contact me at if you have any thoughts or questions about this QTIP trust planning.

My 7.9.20 Steve Leimberg Newsletter: Inter-Vivos QTIP Trusts; Now Even Better in Georgia

I continue to believe the inter-vivos QTIP marital trust is one of the best options for tax / asset protection trust planning. Click here for my July 9, 2020 newsletter. At a minimum, I ask that you at least read the section of my newsletter captioned “Preface – The Notion of Asset Protection Planning“. Please contact me at if you have any thoughts or questions about this QTIP trust planning.

Note:  You have my permission to print, copy, or forward copies of this newsletter to any other third-parties. 

Why Are Divorces Expensive?

There is an well-worn reply among lawyers to the line:  “Why are divorces so expensive?” The reply is “Because they’re worth it.” Of course, this reply, no doubt, has multiple layers of meaning for every person. Especially depending on where one stands after a divorce.

But, on one level the reply makes a great deal of sense. I am a strong believer that clients benefit from having an experienced, knowledgeable lawyer. Obtaining good legal and tax counsel is a cost-benefit investment that in most cases produces benefits well beyond the expense and time. Lawyers can also help give their clients a comforting degree of repose and peace of mind.

Now, applying the above notion to asset protection and estate planning, unfortunately this planning often appears to clients, on the surface, to be nothing more than a transactional expense and time-consuming burden.  Very easy to put off until later. There typically, and understandably, is no strong emotional motivation for this planning, compared to the threat of divorce.

But, I also believe most people are aware of the thousands of reported court cases and anecdotes among friends and family illustrating the vast number of costly problems arising from the absence of asset protection and estate planning.  But, then again, we all tend to think these problems only happen to others. Not to our family.

So, a universal question most families need to ponder is the possible surfacing of a divorce by a son-in-law or daughter-in-law with war-like efforts to grab the other spouse’s inheritance. This question touches directly on asset protection and estate planning. In addition, and more subtle, are increased taxes (including income tax) that result from inadequate and inflexible estate planning.

Another universal point on this subject of preventive planning, that I repeat constantly, is: Don’t help line your lawyers’ pockets by getting caught in costly, and otherwise, preventable legal and tax issues. Seek out a lawyer’s preventive review of your situation ASAP. It is an investment, not simply an expense.



Inter-Vivos QTIP Trusts; Almost Perfect

For many years I have been, and remain, a fan of the inter-vivos QTIP trust.  There is no perfect estate planning, but this QTIP is almost perfect.   BTW, this is a brief, technical post primarily for advisors and practitioners who might find this topic useful for their clients.

This inter-vivos QTIP trust is a marital trust for a married couple designed under the QTIP tax laws.  QTIP, in tax law jargon, is “qualified terminable interest property.”

Essentially, one spouse creates and funds this inter-vivos QTIP trust while alive. The other spouse is the beneficiary of the QTIP trust. “Inter-vivos” is an old legal term meaning essentially “between the living”.  A trust someone creates while alive.  By contrast, a trust that only becomes operative when the person dies is a “testamentary” trust. Such as a trust provision in that person’s Last Will and Testament.

As an important aside, and part of the inter-vivos QTIP design, it is possible for the funding spouse later to become a secondary beneficiary of the QTIP trust if the other beneficiary spouse dies first. Also, the written provisions of the inter-vivos QTIP trust can include provisions for the children after both spouses’ deaths, etc.

In broad terms, the above inter-vivos QTIP trust provides the following benefits:

    1. It gives a married couple – while they are still living — asset protection for the assets in the inter-vivos QTIP trust.
    2. The inter-vivos QTIP trust is defective for income tax purposes from inception up to the death of the second spouse. This both-spouses duration of the defective status means no trust income tax returns, no compressed trust tax rates, and no separate 3.8% Medicare tax during the remaining lifetimes of both spouses.
    3. I am purposely repeating this above point. That is, defective during the lifetime of the spouse who creates the QTIP trust and during the surviving spouse’s lifetime. This effect on both spouse generally is not available for testamentary QTIP trust planning.
    4. The defective income tax status of this QTIP trust also allows the substitution of assets, called a substitution power. This can allow, if needed, stepped-up basis planning by later substituting into the QTIP trust high-basis assets for low-basis assets, etc.
    5. The inter-vivos QTIP, in my opinion, provides the optimal flexibility for portability options.
    6. The spouse’s funding of the inter-vivos QTIP trust starts the 5-year lookback period for Medicaid nursing home eligibility. This may be important in the event later the spouses need governmental Medicaid nursing home assistance. Medicaid planning – although generally not at the top of most family’s estate planning checklist – can greatly help prevent financial impoverishment of the other spouse (and possibly the children).

For readers who wish to delve into more technical aspects of this inter-vivos QTIP planning, I highly recommend the following breaking-ground 2007 article by well-known estate lawyers Mitchell Gans, Jonathan Blattmachr, and Diana Zeydel.   Click here for the link. It is a well-written article.

A Family Asset Protection Checklist (in pdf format)

The threat of uninsured risks includes, for example, old-age incapacity, predatory elderly remarriages, nursing home care, asset protection, divorce by our children, personal guarantees, bankruptcy.

This blog post includes my memo (link is below) for a family’s asset protection checklist.  Please forward a copy to your family members, friends and neighbors.

Click here for a pdf copy of my memo.

BDIT Trusts — “Mamas, don’t let your babies grow up to be tax lawyers.”

This is a tax lawyer, technically-oriented blog post.   It is about a trust known in the trust / tax world as a BDIT (a beneficiary defective inheritor’s trust).  What is a BDIT and as a practical matter when might one use a BDIT?  This “why” touches on income tax advantages and asset protection.

BDIT Example — Assume Anne wants to make gifts to her daughter so her daughter can have a long-term investment nest egg.  Anne also wants to use a trust to provide her daughter with strong asset protection for this gifted property  (against divorce, bankruptcy, personal guarantees, uninsured claims, etc.). Anne wants this trust to be taxed to her daughter at the daughter’s own lower income tax brackets (the daughter no longer falls under the kiddie tax rules).

A BDIT fits this bill.

Anne’s income tax rates are much higher than her daughter’s rates in the above BDIT example, plus Anne is already in the 3.8% Medicare investment tax bracket.  The daughter is not.  Overall Anne saves income and Medicare tax in this BDIT example with her daughter being taxable on the trust’s income and gains.

By contrast, if Anne funds a non-BDIT trust for her daughter, in general either Anne will pay the trust’s income tax at Anne’s own higher income tax rates, or the trust will pay the income tax under its more costly, compressed rate brackets.  This depends on the trust design for Anne.

Now, what about BDIT asset protection?

In this example Anne is funding the BDIT trust for the benefit of her daughter.  This means Anne’s BDIT trust is a “third-party” trust (the third-party is Anne).  This is compared to a trust the daughter creates and funds herself.  If the daughter funds the trust, instead of Anne, the daughter’s trust will be a “self-settled” trust.  That is, self-settled (funded) by the daughter.

Self-settled trusts (compared to third-party trusts) – as general rule – in many cases don’t provide asset protection.  This means the daughter cannot fund her own trust and then try to use the trust as a shield for asset protection purposes.  Whereas, the daughter is in a much better position to use Anne’s third-party funded BDIT trust as an asset protection shield.

I don’t discuss in this post how to design a BDIT.

But, with BDITs being relatively new in the trust world, and as with any trust subject to various trust, asset protection, lapsing withdrawal right, and tax laws, there is a vast array of differing views on how best to design the BDIT.

I enjoy digging into the nuances of how to optimize this BDIT planning.  And this is an example of a highly technical thicket of complexity that, throughout the years, makes me recall the old Willie Nelson tune, which I often sing under my breath with the lyrics slightly changed to “Mamas, don’t let your babies grow up to be tax lawyers.”

Medicaid Nursing Home Planning. What is the Market?

I ponder this question from time to time as I look around at my friends and family. That is, what is the market and what demographic group needs to consider Medicaid nursing home planning? Planning in terms of helping insulate a family’s assets from being spent down to pay for nursing home care before qualifying for need-based Medicaid paid nursing home assistance. Medicare does not pay for nursing home care except for a short, limited post-hospital recovery period.

The average nursing home expense varies by location. Assume Georgia is $6,000 month and that you will stay in a nursing home for 5 years. This will require $360,000. If both spouses end up with 5 year stays, this is $720,000.

For many high-end clients this cost is not material and self-funding is the most reasonable and likely course of action.

But here is an example more broadly regardless of whether you feel you will self-insure or not. What if I fall on the sidewalk, hit my head, and end up in a nursing home for 20 years? My wife and kids will spend down easily $1.5 million or more of our family assets to cover my nursing home care. But, there are ways this family exposure can be limited. One is an inter-vivos QTIP trust.

And, on the other hand, if nursing home care is the result only of old-age, what — for many families who might have a net worth under $5.0 million — should they do for Medicaid nursing home planning, if anything?

The significant hurdle for this under-$5.0 million crowd is the severe Medicaid 5-year look-back penalty rule (that I will cover in my next blog post). What this means is that ad hoc attempts to transfer away assets to kids, etc., if the transfer occurs within 5 years prior to applying for Medicaid nursing home assistance, will result in an ineligible Medicaid penalty period.

So, last minute giving away of assets is no solution. This “giving away” look-back covers virtually any manner of reducing your assets, including gifts, paying grandchildren’s tuition, etc.

Fortunately, there are Medicaid planning options that are effective in helping these families retain assets. And, for most people in this under-$5.0 million range, a minimum Medicaid planning goal, in my view, should be to try and save the family home from being sold and spent down for nursing home care.