5 Reasons Why a Qualified Terminable Interest Property Trust (QTIP) Can Benefit Your Estate Plan
A Qualified Terminable Interest Property Trust (QTIP trust) is a sophisticated estate planning tool that allows the grantor, or the individual who establishes the trust, to provide for a surviving spouse while maintaining control of the principal assets held within the trust and how they are bequeathed upon the death of the surviving spouse.
The QTIP trust is irrevocable, meaning it cannot be changed. The QTIP trust works effectively for blended families, including children from previous marriages. The QTIP trust enables the grantor to pay an income generated from the trust to a current surviving spouse for their remaining life while still protecting the inheritance of the grantor’s children from a prior marriage. The surviving spouse will typically receive payments from the trust but will have no ownership interest or control of its assets. This prevents liens from being placed against the property held within the trust or the trust itself and protects the interests of the trust’s listed beneficiaries.
While commonly used in blended family situations, QTIPS offer an array of other benefits. Here are five reasons why a Qualified Terminable Interest Property Trust (QTIP trust) can benefit your estate plan:
- A QTIP trust ensures that a portion of your estate will pass on to future generations while still providing for your surviving spouse for his or her remaining life.
- A QTIP trust will protect your assets and your children’s inheritance from a future spouse if your surviving spouse decides to remarry following your death.
- The QTIP minimizes and defers estate and gift taxes. The property within the QTIP trust that provides income to a surviving spouse for his or her remaining life qualifies for marital deductions and is nontaxable after the first spouse’s death. The property becomes taxable after the second spouse’s death, with the liability being transferred to the named beneficiaries of the assets held within the trust.
- All irrevocable trusts offer some level of protection of assets against creditors. Limiting a surviving spouse to only receiving income generated from the trust, there is less possibility of losing assets in the event of a lawsuit, debt collection, and scams. Trust assets are also exempt from being counted toward Medicaid income and asset limits, which can help the surviving spouse qualify for long-term care if their income level makes them an eligible candidate.
- Unlike a marital trust, QTIP trusts are more restrictive regarding how funds are to be managed. This can be a wise option for surviving spouses who aren’t financially responsible. In addition, no power is given to the surviving spouse to appoint new beneficiaries following the grantor’s death. Final beneficiaries are determined by the grantor and receive the remaining balance of the trust when the surviving spouse dies. A marital trust offers more flexibility as it distributes some assets to the surviving spouse and remaining assets to final beneficiaries before the surviving spouse’s death.
As mentioned above, QTIP trust is a solid estate planning tool for individuals who want to take care of their loved ones and leave behind a lasting legacy. To learn more about the QTIP trust and other types of trusts available that can benefit your estate plan, consult with a BMC Estate Planning attorney. The BMC legal team is skilled and experienced in drafting comprehensive estate plans for our valued clients that protect their families’ best interests and everything they’ve worked hard for. BMC Estate Planning is the law firm to (QTIP) trust.
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