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Marital/QTIP Trust

June 30, 2022

For some married couples—especially those with children from a previous marriage—one of the most beneficial documents you can have is called a Qualified Terminable Interest Property Trust (QTIP).

QTIP Trust

A QTIP trust provides certain benefits for a surviving spouse while also putting limits on how much they are able to access. These are typically used for individuals in a second or third marriage, who either have large amounts of wealth and/or have children from a previous marriage who they want to provide for after they pass. Essentially, this trust allows you to leave assets for your spouse, but it limits the amount they receive and reserves some assets for other heirs. There are also certain tax benefits for the surviving spouse.

For example, one spouse has set up a QTIP trust, and named their husband as the “life beneficiary” and their child from a previous marriage as the “final beneficiary.” When the first spouse dies, her husband will get certain named assets that may include property or investments that he can use and earn from for the duration of his life; however, he is not allowed to sell any of these assets, and after he passes away, the assets will then go to the final beneficiary.

QTIP trusts must be irrevocable (meaning you can’t make changes to it once it’s set up), the living spouse must receive payouts from the trust at least once a year, and there can be no other beneficiaries for as long as the surviving spouse is alive. It’s also important to note the differences between a QTIP and a marital trust. A marital trust works almost identically to a QTIP, but a QTIP allows the grantor more control. With a QTIP, the grantor can put limits on what the surviving spouse can do with the principle and the surviving spouse cannot control what happens to the assets after they pass.

Benefits of a QTIP Trust

There are many reasons why someone would want to pursue a QTIP trust. The main benefit of this arrangement is that it allows you to provide for both your current spouse as well as your children. Setting up a QTIP trust can drastically reduce family tensions after you pass because everyone knows they’re taken care of. Second, it allows flexibility with how your estate is allocated and provides tax advantages for your executor by letting them minimize the effects of estate tax payments. Finally, it can help protect your spouse from creditors since they will only have limited access to the principal.

QTIP & Estate Tax

When many people die, their remaining assets are subject to an estate tax—yet a QTIP trust can defer these taxes. When you pass away with a QTIP trust, no estate taxes will be due on any assets that are in the trust. Your surviving spouse can then take advantage of the unlimited marital deduction provision and they won’t have to pay estate taxes on these assets for as long as they live. After the second spouse passes, the estate taxes will come due.

How an Attorney Can Help

Click here to Schedule a FREE Virtual Estate Planning Session. We will guide you through the entire process and help you understand what needs to be done to ensure your loved ones are taken care of.


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