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Senior Advisor, Benjamin Trujillo J.D., LL.M. –
Qualified Spousal Trusts (QSTs) are a type of estate planning tool in certain states, like Missouri and Arkansas, that can provide married couples with a range of benefits, including asset protection, estate tax optimization, and discrete control over the distribution of their assets after their deaths. However, as with any estate planning tool, QSTs also come with certain risks and drawbacks that must be carefully considered before deciding to use them.
Asset Protection: One of the most significant benefits of using a QST is the asset protection it provides. When a married couple creates a QST and contributes their assets to it, those assets are treated by the law as tenants by the entireties. This means that they are protected from the separate debts of each spouse. Historically, tenants by the entireties were only available for real estate, but now is available to other assets, including those in a QST. Therefore, if one spouse is sued or has a judgment entered against them, the assets held in the QST are generally protected from being used to satisfy the debt. This can provide significant peace of mind for couples who are concerned about protecting their assets from creditors. If you or your spouse work in an industry or own a business where there is a chance one of you will be sued, the QST can provide some real benefits.
Estate Tax Optimization: QSTs can also be used to optimize estate tax exemptions. Under current federal law, each individual is entitled to a certain amount of assets that can be passed on free of estate taxes. However, any assets that exceed that amount are subject to estate taxes. For married couples, a QST can be structured to allow both spouses to take advantage of their individual estate tax exemptions, ensuring that both spouses’ exemptions are effectively used when possible.
Control Over Asset Distribution: Finally, a QST can give married couples more control over the distribution of their assets after their deaths. With a QST, couples can set specific rules and requirements for how their assets are distributed, which can help ensure their wishes are fulfilled after they pass away. For example, a QST might require that certain assets be used to provide for the surviving spouse, with the remainder distributed to their children or other beneficiaries.
Risks and Drawbacks of Using a Qualified Spousal Trust
Uniqueness: One of the primary risks of using a QST is the uniqueness of the process. QSTs are a unique product of legislation that is specific to certain states, such as Missouri and Arkansas. As such, they are generally only available to residents of those states and assets in the states that have created relevant laws and should be drafted by attorneys licensed to practice in those states.
Divorce: The benefits of the QST are lost in the event of divorce. The assets in the trust revert to their pre-contribution status and are no longer considered properties covered under tenants by the entireties.
In conclusion, Qualified Spousal Trusts (QSTs) can be a powerful estate planning tool for married couples who are residents of states like Missouri and Arkansas. They can provide significant asset protection, estate tax efficiency, and more control over asset distribution after death. As such, it’s important to carefully consider whether a QST is the right option for your specific needs and circumstances. Don’t hesitate to get in touch with a CWCJ team member if you would like to discuss if a QST could fit your needs.
If you would like to learn more, you can contact me at 314-735-9106 or at btrujillo@monetagroup.com.
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