Qualified Terminable Interest Property Trust

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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.

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.
References in periodicals archive ?
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.
In some cases, a QTIP election was made when the taxable estate (before allowance of the marital deduction) was less than the applicable exclusion amount under Sec.
(22) In this situation, the trustee was authorized to invade a marital trust (for which only a partial QTIP election was made) in order to pay to, or for the benefit of, the transferee spouse any amounts deemed "necessary or desirable, consistent with [transferee spouse's] accustomed standard of living, for her health, maintenance, or support." The Office of Associate Chief Counsel determined that this interest qualified for the TPT credit to the extent attributable to the portion of the marital trust for which the QTIP election was not made.
Example 1: Dwight Emerson's will calls for the establishment of a QTIP trust, to be funded with most of his assets.
IRC section 2519 provides that a gift of any part of the qualifying QTIP income interest will be treated as a transfer of the entire QTIP property [Treasury Regulations section 25.2519-1(g)].
The first-to-die spouse in this case left assets to the surviving spouse in a QTIP trust to take advantage of the estate tax marital deduction.
Apparently, the ETIP rules do not apply if a reverse QTIP election (see below) is made.
Provided there are sufficient assets to support the surviving spouse, it may be optimal for the trustee of the mari tal QTIP trust to distribute the marital QTIP assets to the surviving spouse.
While over-reliance on a QTIP Trust to support the surviving spouse may squeeze the children's inheritance, an effective solution is to incorporate an ILIT into the blended family estate plan.
If state law recognizes the QTIP, it may allow your client to take advantage of the larger federal exemption at the first death and delay the state taxes until the second death.
(3) Additionally, a marital deduction should be available if all income from the IRA is distributed at least annually to the surviving spouse, no one has the power to distribute any part of the IRA to anyone other than the surviving spouse, and the executor makes a qualified terminable interest property (QTIP) election.
The QTIP trust provides a way to defer estate taxes by taking advantage of the marital deduction, yet "control from the grave" by directing who will eventually receive the property upon the death of the surviving spouse.