Qualified Terminable Interest Property Trust

(redirected from QTIP Trusts)

Qualified Terminable Interest Property Trust (Q-TIP)

A trust that allows a surviving spouse to receive income generated from the trust, while the actual distribution of the trust's assets is made to other beneficiaries such as the grantor's children.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
(10) Very often, two QTIP trusts are established to maximize the decedent's generation-skipping transfer (GST) tax exemption; generally speaking, a "reverse-QTIP" election is made under I.R.C.
Historically, QTIP trusts were used to defer estate tax to the death of the second spouse.
QTIP trusts combined with disclaimers have been increasingly used after EGTRRA 2001.
QTIP trusts are a staple of estate planning form books, and qualifying drafting language is readily available.
QTIP trusts are a popular estate-planning tool for married couples with potentially taxable estates.
When one spouse dies, the credit shelter and QTIP trusts become irrevocable, providing the surviving spouse with income and principal for support and maintenance--but preventing the surviving spouse from redirecting trust assets to his or her own children or other outsiders When the surviving spouse dies, assets remaining in trust revert to the children of the first deceased spouse.
After the death of both donors, the exempt bypass and QTIP trusts, together with the amount of assets from the surviving spouse to which that spouse's unused GST exemption would be allocated, could be held in trust for the children for their lives, and then held in trust for the grandchildren, and then held for the great grandchildren, subject to the rule against perpetuities.
(QTIP trusts are used where the decedent wants the surviving spouse to enjoy certain estate assets during the survivor's lifetime, but also wants to control the ultimate disposition of the property to children or others.) In example 3, Donna could have put her estate in a QTIP trust for her husband with her nephew as the ultimate beneficiary, thereby taking full advantage of the spousal basis step-up.
Many taxpayers may need to consider funding QTIP trusts with retirement assets.
The reasoning of Revenue Ruling 2000-2 is not new to QTIP trusts: With respect to nonretirement assets, a marital deduction will be allowed if a trust instrument merely gives the surviving spouse the right to the income.
Like credit shelter or disclaimer trusts, QTIP trusts can create tension, because the interests of multiple beneficiaries must be considered.
In order to maximize the utility of this technique, the A-B or A-B-QTIP trust device can be designed to pass to the A trust or to the A and QTIP trusts together exactly enough property to reduce the federal estate tax in the estate of the first spouse to die to the lowest desired amount--even to zero.