FAQs About QTIP Trusts

Like other kinds of trusts, a Qualified Terminable Property Interest trust avoids probate and therefore gives grantors (people who make trusts) more control over their assets. QTIP trusts are particularly attractive because they maximize all available exclusions without adversely affecting the marital deduction.

Also, like other kinds of trusts, the rules regarding QTIP trusts are very specific and unforgiving. A St. Petersburg estate planning lawyer should handle all QTIP matters from start to finish.

What is a QTIP Trust?

A qualified terminable interest property (QTIP) trust is a legal document that protects an individual’s assets on behalf of the surviving spouse while maintaining control over how the assets are distributed once the surviving spouse dies.

A surviving spouse receives all income generated from the property in the QTIP trust, which in many cases, ensures lifelong support.

How Does a QTIP Trust Work?

A QTIP trust is an irrevocable trust that pays income generated from the assets to a surviving spouse. When that spouse dies, the assets in the trust pass to the beneficiaries named by the grantor.

What is the Difference Between a QTIP and Marital Trust?

The two are similar, except on the issue of control. A QTIP is not controlled by the surviving spouse. The surviving spouse receives income generated by the trust, but the surviving spouse has no control over the assets in the trust. So, when the surviving spouse dies, the assets will be distributed to designated beneficiaries exactly according to the grantor’s specification.

What are the Requirements of a QTIP Trust?

A QTIP must pay all of its income to the spouse beneficiary. There can be no other beneficiaries until that spouse passes away.

What Are the Benefits of a QTIP Trust?

Grantor control, as mentioned above, may be the biggest benefit of a QTIP trust. The grantor controls who the assets pass to after both spouses die. This means that no matter what the surviving spouse does after the grantor’s death, any assets left in the trust are passed on to the secondary beneficiaries named in the estate plan. These beneficiaries are usually children, grandchildren, and/or children from a previous marriage.

Furthermore, QTIPs protect all assets and income. A surviving spouse may eventually be unable to make sound financial decisions. Dictating the trust’s distribution in advance protects all of the beneficiaries from misuse of the assets.

How Do Spousal Payments Work in QTIP Trusts?

The surviving spouse named within a QTIP trust typically receives payments from the trust based on the income the trust generates, similar to stock dividends. Payments may also be made from the principal if the grantor allows it when the trust is created.

Payments will be made to the spouse for life. Upon the person’s death, the payments cease as they are not transferable. The assets in the trust, and the income those assets generate, become the property of the listed beneficiaries.

What are the Tax Advantages of a QTIP Trust?

The income paid to the surviving spouse from the QTIP trust qualifies for marital deduction. That means that the assets in the trust are not taxable after the first spouse’s death. Instead, the property becomes taxable after the second spouse’s death, with this liability transferring to the named beneficiaries.

Connect With a Diligent Pinellas County Lawyer

Will and estate matters are very complex. For a confidential consultation with an experienced estate planning lawyer in St. Petersburg, contact Drude Tomori Law. We routinely handle matters throughout the Sunshine State.

Source:

law.cornell.edu/wex/qualified_terminable_interest_property_(qtip)_trust