A QTIP Trust, or Qualified Terminable Interest Property Trust, is an estate planning tool that allows a person to provide for their surviving spouse while also controlling how the assets are distributed after both spouses have passed away. Here’s a breakdown of its key features:
Provide for Surviving Spouse: The surviving spouse receives income generated from the trust assets during their lifetime, and the grantor can choose to provide limited access to the principal. For example, the grantor can allow the surviving spouse to access the principal for certain needs, like support and health.
Qualified Property: The trust is designed to qualify for the marital deduction under the Internal Revenue Code, which allows the transfer of assets to a surviving spouse without incurring federal estate taxes at the time of the transfer. By qualifying for the marital deduction, the QTIP Trust allows for the deferral of estate taxes on assets transferred to the trust, benefiting the surviving spouse without immediate tax consequences.
Control Over Final Distribution: After the surviving spouse passes away, the remaining trust assets can be distributed according to the grantor's wishes, often specified in the trust document. This allows the grantor to ensure that children from a previous marriage or other beneficiaries receive the assets.
Flexibility and Protection: QTIP Trusts can provide financial protection for the surviving spouse while ensuring that the original grantor's intentions are met regarding the distribution of their assets. The terms of a QTIP Trust can be structured to adapt to changing family dynamics or financial situations, offering flexibility in managing the trust assets. In addition, assets held in a QTIP Trust may protect from creditors of the surviving spouse, as the trust can offer a layer of financial security.
Tax Deferral: QTIP trusts allow the surviving spouse to defer estate taxes until they pass away, which can benefit the overall estate planning strategy. The value of the trust is included in the surviving spouse's estate, which may help manage tax liabilities more effectively.
Overall, a QTIP Trust is an effective way to balance the financial needs of a surviving spouse with the desire to control the distribution of assets after their death. If you’re looking to learn more about QTIP trusts and how they can benefit your estate planning, don’t hesitate to contact us. We invite you to schedule a meeting with one of our esteemed attorneys to discuss your options and answer any questions you may have.