How Does a Qualified Terminable Interest Property (QTIP) Trust Work?

estate planning

If you or your spouse have children and either has remarried, it’s crucial to consider establishing a Qualified Terminable Interest Property (QTIP) trust. This type of trust can provide an income to your surviving spouse and ensure that your children receive the balance of the funds once the surviving spouse dies. Please continue reading to learn how a QTIP works and how an adept Montgomery County Trust Attorney can help you ensure at least a portion of your estate passes to future generations. 

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

A Qualified Terminable Interest Property (QTIP) Trust is an estate planning tool that enables a grantor (the person who created the trust) to leave assets for a surviving spouse and maintain control of how the trust’s assets are split up after the surviving spouse dies. Essentially, a QTIP can protect the future of a surviving spouse, children, and future legacies. This type of trust sets aside resources for a surviving spouse. If the spouse in the agreement dies, you will not lose control over how your assets are distributed. Nevertheless, the primary function of a QTIP trust is to provide your spouse with an income for the rest of their life. This trust is intended to ensure the surviving spouse has the financial resources they need to live.

Who Should Consider One?

A significant benefit of this irrevocable trust is that the balance of the funds will be held in the trust until the surviving spouse also passes away. After the surviving spouse’s death, the remainder of the trust will pass to the designated beneficiaries. QTIP trusts can prove helpful, mainly when beneficiaries from a previous marriage exist, but the grantor passes away before a subsequent spouse. Individuals with children from another marriage should consider establishing this type of trust. Ultimately, one can ensure that their spouse is adequately cared for and their assets are distributed to their beneficiaries after their spouse’s passing.

Does a QTIP count as a martial deduction?

Another major benefit of establishing a QTIP is that it can limit estate and gift taxes. The assets in a QTIP are protected from taxation because they qualify for martial deductions, meaning that the value of the trust is not taxable after the first spouse’s death. Instead, the property becomes taxable after the surviving spouse’s passing. At this point, liability transfers to the appointed beneficiaries of the assets within the trust.

For more information regarding QTIPs, please don’t hesitate to contact a seasoned Montgomery County trust attorney. At JD Katz, we are prepared to help you take advantage of various estate planning tools to help you minimize estate taxes and protect your loved ones.