how qualified terminable interest property qtip trusts work
this type of irrevocable trust is commonly used by individuals who have children from another marriage qtip trusts enable the grantor to look after their spouse and ensure that the assets from the trust are passed on after that spouse dies to beneficiaries of their choice beneficiaries could be children from the grantor s first marriage other family members or friends aside from providing the living spouse with a source of funds a qtip trust can also help limit applicable death and gift taxes the property within the qtip trust providing income to a surviving spouse qualifies for marital deductions meaning the value of the trust is not taxable after the first spouse s death instead the property becomes taxable after the second spouse s death with liability transferring to the named beneficiaries of the assets within the trust additionally qtips can assert control over how the funds are handled should the surviving spouse die as the spouse never assumes the power of appointment over the principal this can prevent these assets from transferring to the living spouse s new spouse should they remarry qtip trusts are reported on tax returns using ird form 706 1qualified terminable interest property trustee appointmentsa minimum of one trustee must be appointed to manage the trust though there may be multiple named simultaneously the trustee or trustees will be responsible for controlling the trust and have authority over the management of the assets examples of possible trustees include but are not limited to the surviving spouse a financial institution an attorney and other family members or friends spousal payments and qtip truststhe surviving spouse named within a qtip trust typically receives payments from the trust based on the income the trust generates similar to stock dividends payments can be made from the principal if the grantor allows it when the trust is created payments will be made to the spouse for the rest of their life upon death the payments cease as they are not transferable to another person the assets in the trust then become the property of the listed beneficiaries qtip trust vs marital trusteach type of trust can help you achieve similar estate planning goals however the key differences lie in how the assets in the trust are controlled for example a qtip lets the grantor dictate how assets within the trust are distributed to their spouse and requires that distributions be made at least annually a marital trust allows the surviving spouse to dictate how the assets are distributed it doesn t require distributions and that spouse can even add new beneficiaries a marital trust has more flexibility as this type does not require the surviving spouse to take annual distributions the surviving spouse of a marital gift trust can also appoint new beneficiaries following the death of the original grantor as the surviving spouse is never the true property owner a lien cannot be put against the property within the trust or the trust itself benefits of a qtipwhile qtips are similar to marital trusts there are benefits in certain situations 