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Trusts

Qualified Terminable Interest Property Trust (QTIP)

A Qualified Terminable Interest Property Trust, or a QTIP trust, allows the decedent to provide for a surviving spouse, control the disposition of the remainder interest of the trust after the surviving spouse's death, and take advantage of the unlimited marital deduction. QTIP trusts are frequently used when there are children from a prior marriage and one spouse has considerably more assets than the other. Upon death of the surviving spouse, assets pass to the beneficiaries selected by the first spouse.

With a QTIP trust you can provide for the surviving spouse, without giving the spouse the right to determine who will inherit the trust assets. The surviving spouse receives all income from the trust for life (income from the trust must be paid at least annually). Also, the trustee can invade the principal of the trust to give the surviving spouse what is needed to live comfortably (subject to certain standards such as for health, support, education or maintenance). Because many spouses do not like the idea of having to go to a trustee each time they need money, some couples set up a QTIP trust with only a portion of the estate of the first to die. The other portion of the assets goes to the surviving spouse with no restrictions.

The assets in the QTIP trust qualify for the unlimited marital deduction at the first spouse's death and are included in the surviving spouse's estate at his or her death. The executor of the estate of the first spouse to die must elect to have the trust qualify for the marital deduction in order to exclude it from the decedent's gross estate.

A QTIP trust can be used in conjunction with a bypass trust to make full use of the unified credit amount of both spouses. Planning could be done to maximize the amount of QTIP assets passing to the beneficiaries designated in the first spouse's will. An estate planner should help you decide whether this type of trust best meets your needs and whether it produces the most desirable tax results.

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