Q: I am currently married to my second wife and have two children from a previous marriage. I want to leave my IRA to my wife when I die, but I also want to make sure that my children inherit what remains of my IRA after my wife's death. I've heard a QTIP trust may help, but can I use a QTIP trust with IRA assets?

A: Yes, IRA assets can be used to fund a qualified terminable interest property (QTIP) trust, but the strict requirements of QTIP trusts and the confusing rules governing IRA distributions require careful planning.

First a note on QTIP trusts: A QTIP trust allows the trust creator to provide assets for the needs of a surviving spouse during the spouse's lifetime while ensuring that those assets are distributed according to the trust creator's wishes upon the spouse's death. Any estate taxes on the transfer of the trust's assets are deferred until the death of the surviving spouse as long as the trust qualifies as a QTIP trust.

For the trust to qualify, the lifetime beneficiary (the spouse) must be entitled to all the trust income, payable at least annually, and no person may have the power to appoint any trust property to anyone other than the lifetime beneficiary during his or her life. When the trust creator uses retirement assets to fund the QTIP trust, the required minimum distribution (RMD) rules come into play as well. And the RMD may differ from the trust's income. The trust construction and the IRA administration must be coordinated so that neither the QTIP requirements nor the RMD rules are violated. Consult an attorney who has experience using IRA assets to fund QTIP trusts before executing any such plan.