A Qualified Terminable Interest Property Trust (QTIP) is a marital deduction trust that is an irrevocable marital trust between spouses, to ensure a decedent’s property will give lifetime income to a surviving spouse. After the death of the surviving spouse, the QTIP will then pass the property to other named beneficiaries. The QTIP differs from a terminable interest, whereby the former will terminate or fail at a specific time based on a determined event or contingency. The QTIP is an exception to that rule, and allows the marital deduction and preservation of property to beneficiaries as well.
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Elements of a QTIP Trust
The QTIP is an irrevocable marital trust that qualifies for an unlimited marital deduction, which allows the surviving spouse to use a federal gift and estate tax exemption. The QTIP is a good choice of a trust if you are worried about the potential of a surviving spouse to:
- Remarry and all assets to benefit the new spouse only
- Distribute benefits to someone other than your heirs and named beneficiaries
- Allow creditors to attach the trust property draining those resources
- Be the victim of scams or other vulnerable transfers of assets from the trust res
The QTIP is able to manage the assets, but the trust has to be in the hands of a professional or knowledgeable executor who knows what to do to keep the trust current. This means that the QTIP executor needs to manage any taxes, consider all estate planning and follow the directions and instructions to keep the trust current and viable. For example, missing a deadline or making a mistake in the management of the QTIP trust will mean that the trust would be liable to pay up to thousands of dollars from the estate – which could have been avoided with care paid to the trust and its requirements.
Why Get A QTip Trust?
The major reason to get a QTIP trust is to manage the assets of a spouse while you still have the authority to do so, and ensure that the assets will not go to someone outside of the family if your spouse remarries. This happens more frequently than many people know, and it can be a heartbreak for the family, especially when the adult children were relying on the inheritance to take place at the death of a parent. Even if there are children from a prior marriage, they can be accounted for and included in this QTIP trust, and they are ensured to receive part of the estate instead of being forgotten or intentionally left out in the cold.
You are in the position with a QTIP trust to determine and decide how much your spouse can make withdrawals from the trust (akin to a spendthrift account in some ways). Your instructions that you leave with the investment manager can be reviewed and agreed on by all parties before someone dies, to prevent any surprises later on once the QTIP trust is distributed to beneficiaries on your death.
It is important that your spouse does understand the reason for setting up a QTIP trust, and the terms that are set to apply to that spouse on your death. This is important to “sort out” or discuss beforehand, as the QTIP trust terms are literally set in stone, and there will be no way the spouse can make any changes to the trust beneficiaries on the date of your death. If you have any questions, get in touch with a Texas estate planning lawyer to learn more about your rights.
