QTIP trust

Qualified Terminable Interest Property Trust

A trust into which the trustor deposits funds and other assets to provide for a surviving spouse while also maintaining control of what happens to those assets after the surviving spouse dies. In a Q-TIP, the trustor names his/her surviving spouse as beneficiary and provides that income and/or principal from the trust shall pass to that spouse upon the trustor's death. However, when the surviving spouse also dies, what remains in the trust is distributed to heirs as if it had been a part of the trustor's estate. A Q-TIP is a common trust when a person has children from a previous marriage; that Q-TIP provides for the surviving spouse but later is transferred to children from one's first marriage to ensure that the estate takes care of them as well.

QTIP trust

A marital-deduction trust in which the surviving spouse receives income from the trust's assets for life but the trust's principal is left to someone else, usually children. A QTIP trust controls the eventual beneficiaries while at the same time taking advantage of the marital deduction and providing an income for the surviving spouse.
Should my spouse and I consider setting up a QTIP trust? Why?

A QTIP trust is a marital deduction trust that limits the surviving spouse's access to and control of the trust property. QTIP, or Qualified Terminable Interest Property, is property "qualified" by your executor to take advantage of the federal and state estate tax marital deduction(s).

A QTIP trust may be appropriate if you or your spouse has serious concerns about the following:

  1. A surviving spouse remarrying and then benefiting the new spouse.
  2. A surviving spouse benefiting someone other than your children.
  3. A surviving spouse's creditors attaching the trust property.
  4. A surviving spouse who is unsophisticated or vulnerable.
A QTIP trust addresses these concerns, but the "cost" for such control is that the trust requires the services of a professional or highly sophisticated executor who will make the QTIP election on time and in consideration of all the tax and estate planning circumstances existing at the time of the death. A mistake or missed deadline could cost the estate thousands of dollars and lose the marital deduction for the estate.

Gloria Cole, Attorney, private practice, Weston, MA
References in periodicals archive ?
89-89, the IRS held that an IRA is treated as QTIP if the principal balance payable at the date of death is payable in annual installments to a testamentary QTIP trust over the surviving spouse's life expectancy.
One way to pay some estate tax in the transferor's estate is to make a partial QTIP election (or make no QTIP election) with respect to the QTIP trust.
This area is still in flux but with appropriate planning, the benefits of an IRA can be paid into a QTIP trust for distribution to the surviving spouse without jeopardizing the estate tax marital deduction.
One answer might be to separate assets otherwise passing to a surviving spouse on death into assets conveyed outright to that spouse and assets conveyed to a QTIP trust for that spouse's benefit.
The balance of the estate not passing to the family trust would be placed in a QTIP trust, which would qualify for a marital deduction but be included in the survivor's gross estate.
Trust beneficiaries and the QTIP trust loaned the estate funds to pay the estate tax, and the estate attempted to deduct interest paid on the loan, which the IRS challenged.
That's especially true for people who are in a second (or even a third) marriage, because a QTIP trust can prevent a second spouse from disinheriting children from a first marriage.
The designation of the QTIP trust as a beneficiary did not trigger the acceleration of tax on the IRD when the plan passed to the trust.
The surviving spouse could disclaim her income interest in the QTIP trust created by the first-to-die spouse.
5 million by the lime Daisy passes away, and the properly was owned by Daisy or by a QTIP trust for Daisy.
In this private letter ruling, the IRS allowed an extension of time for the executor of an estate to correct the decedent's failure to properly plan for generation skipping transfer ("GST") taxes when he created a QTIP trust to pass assets to his beneficiaries.
I find this leads to much less of the A-B trust needs we are used to seeing, although there is often still the need for a QTIP trust -- Qualified Terminable Interest Property -- and a discussion of the pros and cons.