When it comes to your family’s financial future and the state of your hard-earned home, you should make a point to anticipate problems ahead of time through proper estate planning. Every family is different, and that’s why Legacy Lawyers has a range of different trusts to consider that will work very well for some people but aren’t appropriate for others.
One of those options is a Qualified Terminable Interest Property (QTIP) trust. While it's an absolute mouthful to say, that’s a phrase well worth remembering—especially in situations where one or both spouses have been married more than once.
Why You Should Consider a QTIP Trust
One day your family will have to deal with your passing, and that’s when things can get messy if you haven’t properly prepared. Gifting everything while you are alive or leaving your entire estate to your spouse or children through a will typically aren’t the best options. That’s especially true if you have remarried and have a blended family with children from multiple marriages. These issues often become major points of contention in families where one spouse has significantly more money or property than the other.
A major problem in simply leaving your assets to your immediate family is that you have no say in how accounts are managed, money is spent, and the property is maintained. That’s where a trust comes into play that utilizes a neutral third party to oversee the assets.
With a QTIP trust in place, your surviving spouse receives a regular disbursement of funds so they are taken care of financially. If crafted properly, this type of trust allows you to utilize marital deductions to reduce tax liability for property placed in the trust.
Another critical element of a QTIP trust is that your spouse doesn’t actually take control of anything in the trust after you die. While your wife or husband can live in the property, utilize the monthly funds, and in some cases even oversee investments, they don’t actually own any of it. Should your surviving spouse remarry, your property and funds don’t go to that new person and instead will eventually end up with your heirs. When your surviving spouse eventually passes away, the remaining beneficiaries of the trust then begin receiving benefits.
How a QTIP Trust Works
It should be clear that a QTIP trust can be an incredibly useful tool for ensuring your husband or wife has what they need financially after you are gone, and that your children from any of your marriages still receive the rest of your assets. With the help of an experienced estate planning lawyer, here’s how the trust specifically works:
- You as the “grantor” of the trust decide what goes into the trust and how the funds are utilized.
- A trustee is appointed to oversee the trust and manage the assets. This person can be a loved one who shares your values and views on money, an attorney, a financial institution, or in some circumstances even your surviving spouse.
- Income generated by the trust is given to your spouse on a monthly basis, with the balance kept in the trust due to eventually go to your children.
- The QTIP trust exists as its own separate tax entity and must file yearly income tax returns like a business after you die and your spouse begins receiving payments.
- In most cases, the spouse can’t sell or gift the assets in the trust, and they don’t go into your spouse’s estate when they die. That means your house, monetary funds, or accounts stay in your family no matter what happens down the line.
- After your spouse passes away, funds in the trust are then granted to the next beneficiaries. That’s typically your children, although you can name others as well depending on your family situation.
QTIP trusts are a valuable option for wealthier blended families dealing with gift and estate tax concerns, as well as avoiding the probate process. It’s important to discuss the full implications with an attorney, however, as there are potential drawbacks. For instance, while you avoid the estate tax on the property when you pass away by placing it within a QTIP trust, that tax can still be assessed after your surviving spouse eventually dies.
Talk to a Trusted Estate Planning Attorney
Are you wondering if a QTIP trust could be the right solution for your financial and family situation? Send us a message through our online form and we’ll get in touch to assess your options. Let us help you preserve your legacy and ensure your assets go where you want them.