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What is a Qualified Terminable Interest Property (QTIP) Trust?


As you are journeying through life, you may be starting to think about what will happen once you are gone. If you are worried about your spouse or your family’s financial security, then you may be wondering what your options are.

These issues can be complicated to think about and sort through. However, it is customary to make sure your family is taken care of once you aren’t able to anymore. This is why you should seriously consider creating a trust during your estate planning. You must begin to establish a plan that promotes flexibility when allocating your estate property and maximizes the tax advantages. That is why many spouses find a Qualified Terminable Interest Property (QTIP) Trust a viable option.

If providing the best outcome for your family is valuable to you, then the benefits of a QTIP Trust are plentiful. Let’s take a closer look.

What is a Qualified Terminable Interest Property (QTIP) Trust, and How Does it Work?

A QTIP trust allows you to provide for your spouse if they survive you, while also allowing you to control how your trust assets are issued once your spouse dies. Any income, or even the principle, that is produced from the trust will be given to any surviving spouse so that you can ensure that your loved one is taken care of.

A QTIP Trust is essentially an A/B arrangement considered more restrictive than a standard marital trust fund. In most A/B arrangements, the A is the marital portion of the trust that is fully accessible by your spouse. Contrarily, a QTIP will only allow limited access to the trust assets. Rest assured that your spouse may be able to receive an income. However, the spouse can’t decide on the disposition of the assets and cannot draw the principle from the trust. You can request that more significant than $5,000 or 5% of the trust’s assets can be given annually to your spouse.

Besides leaving your spouse some money, QTIP can be a good way of limiting applicable estate and gift taxes. Any property included with the QTIP that provides funds to the surviving spouse qualifies for marital deductions. This means that the funds won’t be taxable after the death of the first spouse.

What is the Difference Between a QTIP and a Marital Trust?

Both a marital trust and a QTIP help to achieve similar estate planning goals. However, a QTIP offers a considerable direction of trust funds. In contrast, a marital trust has more flexibility because it does not require the surviving spouse to take annual distributions. The surviving spouse will also be able to appoint a new beneficiary following the death of the original proprietor with a marital trust fund.

Advantages of a QTIP Trust

Tax Deductions

A QTIP trust allows you to take advantage of tax deductions. As stated, that means that if you have a large estate, you can push off paying taxes on it until your spouse passes away. Yet, unlike a marital trust, many nuances make a QTIP trust preferable in certain circumstances.

Power to Appoint 

With a QTIP trust, your spouse won’t have control over the principle of your trust, and you will have the power to appoint who you want your trustees to be and future beneficiaries. This means that your spouse can receive income from the trust without ever having ownership of the trust. This can be helpful if you are remarried and have kids from a previous marriage and want them to be the beneficiaries of your trust after your new spouse passes. If you only have a marital trust set up, then there isn’t a guarantee that your children or grandchildren will take over the trust in the future.

Power of Protection

Lastly, by having a QTIP, you will place limits on what your spouse can access with the trust. This way, you can provide them with some protection if they are prone to scams or incapacity. If you limit their ability of what they can access from the fund, you can choose to allow them to have it for health care or access be approved by a separate trustee.

Is a QTIP Trust Right For Me?

Whether it’s a straightforward trust for an individual or family that owns a single home, or a complex, high-net worth, estate plan involving multi-faceted structuring, lifetime gifting, valuations, and irrevocable trust strategies, Brackin & Johnson will provide you with the estate planning and trust solutions you need to protect your family legacy.

Contact Brackin & Johnson today to assist with all of your estate planning needs. 

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