What is a QTIP Trust?

Law Office of Jonathan D. Alexander, Esq.

A QTIP trust or a qualified terminable interest in property trust is a type of irrevocable trust that allows the person who creates the trust (the Grantor) to provide for a surviving spouse during her life but also maintain control over the trust’s assets once the surviving spouse dies.  The QTIP may be set up in a way to provide access to income from assets in the trust (e.g., dividends from stocks bonds held in the trust) or principal (e.g., the stocks and bonds themselves).   

How Does it Work?

When the Grantor or Grantors (e.g., a husband and wife) create their estate plan they elect to use a QTIP at the death of the first spouse.  The Grantors decide the rules for the QTIP. There are some design limitations. The QTIP must provide that the surviving spouse receives all the income from the QTIP during her life. If it does, the QTIP trust will qualify for the marital deduction and no estate tax is due.  Under federal law, spouses can transfer an unlimited amount of property and/or money to each other at any time free from taxation. This is known as the unlimited marital deduction.  Only the beneficiary spouse can be a beneficiary of the QTIP trust

The QTIP can also be structured to provide the surviving spouse access to principal.  Once the surviving spouse dies, the payments from the QTIP stop and the assets are then distributed to the Grantors’ beneficiaries as explained in their estate plan. 

What are the Similarities and Differences between a QTIP and Marital Trust?

A marital trust is like a QTIP in that they are both:

  • Irrevocable trusts.
  • They only name the spouse as beneficiary.
  • They can qualify for the unlimited marital deduction.
  • Defer taxes until surviving spouse’s death.  

The QTIP is different from the marital trust in that:

  • The QTIP does not provide control to the surviving spouse (the Marital Trust does).
  • The QTIP provides access to income and may provide access to principal (in a Marital Trust the surviving spouse controls how assets are distributed).

When Would I Need One?

If you are concerned about how your assets are distributed after your spouse dies, you may want to consider a QTIP.  This especially relevant with blended families. 

What are the Drawbacks?

A QTIP may create conflicts between remainder beneficiaries (typically, the Grantors’ children) and the surviving spouse.  The crux of the conflict is that the surviving spouse has no control over the remaining assets.  The chance that conflict will arise hinges on:

  • The status of the relationship between the surviving spouse and the remainder beneficiaries (this relationship may be especially fractured if these are children from a prior marriage).
  • The surviving spouse’s sources of money besides the QTIP.

What are the Benefits?

With a QTIP, you control the flow of assets after your death and even after your spouse’s death.  Regardless of what your spouse does, any assets that remain in the QTIP are passed to your beneficiaries (children, grandchildren, or kids from a prior marriage). 

QTIPs can provide asset protection.  If place controls around how your money and property are to be used, you can prevent scammers and thieves from getting access.

How Do I get More Information?

 Call the Law Office of Jonathan Alexander at (949) 334-7823 to find out whether a QTIP trust is right for you.  Mr. Alexander has 20 years of legal experience and is ready to help you create a customized, comprehensive estate plan that protects you, your family, and your legacy. 

To read more about Mr. Alexander, his practice, and his estate planning philosophy visit his bio linked here.

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