Qualified Terminable Interest Property (QTIP) Trust
Candlefocus EditorA QTIP trust provides flexibility to the grantor, in that it allows them to set specific conditions and beneficiaries that they wish to have be taken into consideration when distributing their trust’s assets. The grantor can specify the amount of income that the surviving spouse receives during their lifetime, as well as the beneficiaries who will take possession of the remainder of the trust after their death. This kind of trust also allows the grantor to designate beneficiaries who exist from a previous or current marriage.
In addition to providing the grantor control over their estate upon death, QTIP trust offers additional tax savings. Unlike other types of trusts, the estate tax is not assessed at the time of the first spouse’s death, under a QTIP trust. Instead, the tax liability is only determined after the surviving spouse’s death. This gives the two spouses the freedom to structure an estate plan that provides tax savings and benefits each partner.
To create a QTIP trust, the executor of the estate is responsible for filing a QTIP trust election with their tax return. The trust must fulfill a number of conditions in order to be considered a valid QTIP trust, such as not allowing for any distributions outside of the surviving spouse’s lifetime, and not allowing for the surviving spouse’s creditors to access the trust’s funds.
Overall, QTIP trusts are an effective way for individuals to protect the interests of their estate and beneficiaries while also providing financial support to their surviving spouse. By filing the appropriate documents with their tax return, the grantor can establish a trust that follows the IRS’s regulations and ensures that the trust’s assets are distributed according to their wishes after the surviving spouse passes away. In addition, the trust can provide the grantor and their estate with important tax savings.