Table of Contents
- What Is a Qualified Terminable Interest Property (QTIP) Trust?
- Key Takeaways
- How Qualified Terminable Interest Property (QTIP) Trusts Work
- Tax Advantages of a QTIP Trust
- QTIP Trustee Appointments
- Spousal Payments and QTIP Trusts
- QTIP Trust vs. Marital Trust
- Benefits of a QTIP
- How Does a QTIP Trust Work?
- What Is the Difference Between a QTIP and Marital Trust?
- What Are the Requirements of a QTIP Trust?
- The Bottom Line
What Is a Qualified Terminable Interest Property (QTIP) Trust?
Let me explain what a qualified terminable interest property (QTIP) trust is—it's a legal setup that safeguards your assets for your surviving spouse while you keep control over where those assets go after they pass away.
You can count on the trust to pay out income, and sometimes even principal, to your spouse for their lifetime support.
Key Takeaways
In a QTIP trust, your surviving spouse gets income until they die, and then the remaining funds go to the beneficiaries you chose as the original grantor.
This tool works well in estate planning, especially if you have children from different marriages.
It also offers tax benefits—estate taxes get deferred until after your spouse's death.
How Qualified Terminable Interest Property (QTIP) Trusts Work
A QTIP trust is an irrevocable trust often used by people with kids from more than one marriage. Your surviving spouse gets lifetime income, but you decide how the rest is distributed after they're gone.
It's not limited to that scenario—you can set it up for any family member, friend, or even a cause.
Importantly, your spouse doesn't get appointment power over the principal, so the assets won't end up with a new spouse if they remarry.
Tax Advantages of a QTIP Trust
Here's where the tax perks come in for your surviving spouse.
The income from the trust qualifies for the marital deduction, meaning assets aren't taxed after your death—they become taxable only after the second spouse dies, and that liability shifts to the beneficiaries.
Remember, you report QTIP trusts on IRS Form 706.
QTIP Trustee Appointments
You need at least one trustee to manage the trust, but you can name more. They're in charge of the assets and their management.
Options for trustees include your surviving spouse, a bank, a lawyer, or a relative or friend.
Spousal Payments and QTIP Trusts
Your surviving spouse gets payments based on the trust's income, like dividends from stocks. If you allow it when creating the trust, payments can come from the principal too.
These payments last for their life, but they stop at death and aren't transferable. Then, the assets go to your named beneficiaries.
QTIP Trust vs. Marital Trust
Both QTIP and marital trusts are irrevocable and name the spouse as beneficiary, offering unlimited marital deduction and deferring taxes until the spouse's death.
The big difference is control—in a QTIP, you as the grantor decide asset distribution after the spouse dies, and control doesn't pass to them.
In a marital trust, the surviving spouse takes control and decides distribution, and it doesn't require distributions to them.
Benefits of a QTIP
QTIPs have advantages over marital trusts in specific cases. You get to control where assets go after both you and your spouse die, so no matter what your spouse does later, the assets reach your secondary beneficiaries—like kids or grandkids from a prior marriage.
They also protect all assets and income; if your spouse can't make good financial choices later, pre-setting the distribution keeps everything safe from misuse.
How Does a QTIP Trust Work?
Simply put, it's an irrevocable trust paying income to your surviving spouse from the assets. When they die, those assets go to the beneficiaries you named.
What Is the Difference Between a QTIP and Marital Trust?
They're alike, but in a QTIP, the surviving spouse doesn't control it—they just get the income, and assets distribute as you specified.
What Are the Requirements of a QTIP Trust?
The trust must pay all its income to the spouse beneficiary, and there can't be other beneficiaries until that spouse dies.
The Bottom Line
QTIP trusts make sure your spouse is supported for life while keeping the trust whole for your other beneficiaries.
They're not for every situation—if you don't care about distribution after your spouse's death, skip it. But if you want your wishes followed exactly, a QTIP gets it done.
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