When To Use a QTIP Trust – A qualified terminable interest property, or QTIP, trust provides for a surviving spouse while allowing you to maintain control over how your trust’s assets are distributed once that spouse dies. Income and sometimes principal that are generated from the trust are given to the surviving spouse for life.
A QTIP trust, which is irrevocable, is especially useful if you have children from another marriage. This trust lets you look after your current spouse while making sure that the trust’s assets are passed on to other beneficiaries of your choice — the children of your first marriage, in this case.
With this trust, your spouse never assumes the power of appointment over the principal. You continue to assert control over how the funds are handled. This can prevent these assets from transferring to the ex-spouse’s next spouse if they remarry. And the value of the trust isn’t taxable after you die: The property becomes taxable after your spouse’s death and liability transfers to the named beneficiaries.
A minimum of one trustee must be appointed to manage the trust, though multiple individuals or organizations may be named simultaneously. Trustees are responsible for controlling the trust and have authority over how the assets are managed.
Surviving spouses named in a QTIP trust receive payments from the trust based on the income the trust generates, like stock dividends. The surviving spouse is never the true owner of the property; therefore, they cannot put a lien against the property named in the trust or against the trust itself.
A QTIP trust is similar to a marital trust, which also holds the assets of the spouse who dies first. You might even say a QTIP trust is a specific type of marital trust. A marital trust is created on your death for your surviving spouse, but with a QTIP trust, you have control over the trust assets and final say on designating the final beneficiaries.
With a QTIP trust, your surviving spouse may continue to live in your house, for example, but they cannot sell the house because ownership rests with the trust.
While trusts in general hold many different types of assets, it’s important that a QTIP trust contain some income-producing property to provide a steady stream of income. When a QTIP trust is properly structured according to the IRS, assets can qualify for the marital deduction. The marital deduction ultimately ensures that the QTIP trust’s assets won’t count toward your taxable estate if you die first.
However, when your spouse dies and the assets are distributed to the beneficiaries, those assets are counted as part of the gross estate and taxes must be paid if their value is over the limit. A QTIP trust’s assets are not countable toward Medicaid resource limits, so it can help your surviving spouse qualify for long-term care if income falls under eligibility requirements.
Do you think a QTIP trust is right for you? Consult with a qualified professional to see how a QTIP trust, or other kind of trust, might be right for your family.
Did you enjoy reading, When To Use a QTIP Trust?
Interested in learning more about this subject? Attend our upcoming estate planning webinars!
Have You Properly Protected Your Loved Ones? (FREE Estate Planning Workshop), Trustee and Power of Attorney Training School Webinar, Medi-Cal Webinar, and/or Probate Webinar. Get registered today for our estate planning webinars!
This website is not intended to be a source of solicitation or legal advice. General information is made available for educational purposes only. The information on this blog is not an invitation for an attorney-client relationship, and website should not be used to substitute for obtaining legal advice from a licensed professional attorney in your state. Please call us at (626) 403-2292 if you wish to schedule an appointment for a legal consultation.
For more information about The Hayes Law Firm, visit our Google My Business page.
Thanks for reading, When To Use a QTIP Trust!
- Four Famous Probate Cases in History - April 13, 2023
- Wedding Bells, Again? - April 11, 2023
- Tackling Tough Health Decisions With a Health Care Proxy - April 10, 2023
Office hours
Map
The information on this website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.