What is a QTIP Trust?

If you are married and have not yet worked with an estate planning lawyer to write a will, to create advance directives, and to consider the value of a trust, you might want to consider a qualified terminable interest property (QTIP) trust. This is one of many types of trusts that a person can establish in Connecticut, and there are specific benefits solely for a surviving spouse. Depending on your financial and family situation, you might want to consider establishing a QTIP trust in addition to one or more other types of trusts. In the meantime, our Connecticut estate planning attorneys can tell you more about QTIP trusts, how they work, and why people establish them.

Understanding a QTIP Trust 

A qualified terminable interest trust, or QTIP trust, is a type of tool in estate planning “used to maximize a couple’s applicable exclusion amounts while qualifying for the marital deduction,” according to the Cornell Legal Information Institute (LII). It is a trust that allows married couples to defer estate taxes until the surviving spouse also dies, and it allows the surviving spouse to receive payouts from the trust for the rest of the surviving spouse’s lifetime. When the surviving spouse dies, then the successor beneficiary (or beneficiaries) receive the assets remaining in the trust.

A QTIP trust is a type of trust known as a testamentary trust, which means it takes effect upon the settlor’s death.

How a QTIP Trust Works 

QTIP trusts are created like any other trust: the settlor (the person establishing the trust, also called the grantor) sets up the trust with their spouse as the initial beneficiary, and then any other party or parties (typically the settlor’s children) as successor beneficiaries. A third-party, called a trustee, oversees the assets in the trust and has a fiduciary duty in that role. When the settlor dies, then assets in the trust are distributed to the settlor’s surviving spouse for the remainder of the surviving spouse’s lifetime. Then, the named successor beneficiaries become the beneficiaries and begin receiving payouts from the trust.

Why Establish a QTIP Trust? 

In general, there are two primary reasons to establish a QTIP trust: 1) to limit estate taxes, and 2) to protect beneficiaries (like the settlor’s children) if the settlor’s spouse remarries or wants to name other beneficiaries.

To be clear, this type of trust is often established so that a surviving spouse will only receive assets from the trust during their lifetime and will not be able to control what happens to those assets upon their own death. QTIP trusts are common in situations where a person remarries (i.e., a settlor had children with a first spouse, got divorced, and remarried a new spouse), but wants to ensure the children from the first marriage benefit from their assets once the new spouse is no longer living.

Contact a Canton Trusts Lawyer 

Estate planning is important for adults of all ages, and it is particularly important if you have loved ones who depend on you and for whom you may want to establish a trust. Whether you are considering a QTIP trust, a special needs trust, or any other type of trust, an experienced Connecticut trusts attorney at the Law Office of Brian S. Karpe can answer any questions you have and can begin working with you on your estate planning documents and tools. Contact us today to get started.

Sources:

cga.ct.gov/current/pub/chap_802c.htm

cga.ct.gov/2016/rpt/2016-R-0224.htm

law.cornell.edu/wex/qualified_terminable_interest_property_(qtip)_trust