What is a “QTIP” Trust and What is Its Purpose: A “QTIP” trust is a vehicle which qualifies as a Marital Deduction transfer meaning any amount (without a cap) can pass from a spouse to a surviving spouse without any taxation until the time of the death of the surviving spouse. The QTIP maintains the Marital Deduction while AT THE SAME TIME allowing the first to die to CONTROL the ultimate distribution of the assets. ”QTIP” stands for a Qualified Terminable Interest Trust.
The QTIP grants a life interest to the surviving spouse, who is entitled to receive income from the trust regularly and make use of any trust assets, such as a house, within any restrictions of the trust document. The spouse is also allowed to spend trust principal to any extent that’s allowed by the trust. The grantor of the trust names beneficiaries who will inherit the trust assets when the surviving spouse dies. Upon the death of the survivor, the net value of the property in the QTIP is included in the survivor’s taxable estate. QTIP assets don’t go through probate at either the grantor’s or the surviving spouse’s deaths.
The QTIP is only used by couples, and then generally only by those couples whose combined estates exceed their combined estate exemptions. It’s usually used so that one, or both, spouses can be absolutely sure that his or her property will eventually go to their specifically-designated beneficiaries, with the surviving spouse having no power to alter it. The most common situation for the use of a QTIP is when a prosperous spouse has children from a previous marriage.
It’s important to remember that because the QTIP does not eliminate taxes, the full value of the trust property (as of the date of the surviving spouse’s death) is included in the surviving spouse’s taxable estate. If the property has significantly increased in value, more estate tax could be due than if the property had simply been included in the estate of the spouse who was first to die.
What is a “QTIP” Trust and What is Its Purpose: A “QTIP” trust is a vehicle which qualifies as a Marital Deduction transfer meaning any amount (without a cap) can pass from a spouse to a surviving spouse without any taxation until the time of the death of the surviving spouse. The QTIP maintains the Marital Deduction while AT THE SAME TIME allowing the first to die to CONTROL the ultimate distribution of the assets. ”QTIP” stands for a Qualified Terminable Interest Trust.
The QTIP grants a life interest to the surviving spouse, who is entitled to receive income from the trust regularly and make use of any trust assets, such as a house, within any restrictions of the trust document. The spouse is also allowed to spend trust principal to any extent that’s allowed by the trust. The grantor of the trust names beneficiaries who will inherit the trust assets when the surviving spouse dies. Upon the death of the survivor, the net value of the property in the QTIP is included in the survivor’s taxable estate. QTIP assets don’t go through probate at either the grantor’s or the surviving spouse’s deaths.
The QTIP is only used by couples, and then generally only by those couples whose combined estates exceed their combined estate exemptions. It’s usually used so that one, or both, spouses can be absolutely sure that his or her property will eventually go to their specifically-designated beneficiaries, with the surviving spouse having no power to alter it. The most common situation for the use of a QTIP is when a prosperous spouse has children from a previous marriage.
It’s important to remember that because the QTIP does not eliminate taxes, the full value of the trust property (as of the date of the surviving spouse’s death) is included in the surviving spouse’s taxable estate. If the property has significantly increased in value, more estate tax could be due than if the property had simply been included in the estate of the spouse who was first to die.
