:max_bytes(150000):strip_icc()/Qtip_v1_final-3fecc6eab1604c47be9490d770afa9c4.png)
and maintain control of how assets are distributed once the surviving spouse dies." width="4000" height="2700" />Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
Updated August 04, 2024 Reviewed by Reviewed by Marguerita ChengMarguerita is a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC), Retirement Income Certified Professional (RICP), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.
and maintain control of how assets are distributed once the surviving spouse dies." width="4000" height="2700" />
A qualified terminable interest property (QTIP) trust is a legal document that protects an individual's assets on behalf of the surviving spouse while maintaining control over how the assets are distributed once the surviving spouse dies.
Income generated from the QTIP trust, and sometimes the principal, is paid to the surviving spouse to ensure lifelong support.
The QTIP trust is a type of irrevocable trust that is most commonly used by individuals who have children from more than one marriage. The surviving spouse receives an income for life from the trust but the grantor directs how the remainder of the trust will be distributed after the surviving spouse's death.
Although it is most often used by individuals who have children from more than one marriage, the QTIP trust can be used to benefit any family member, friend, or cause.
The surviving spouse never assumes the power of appointment over the principal. This prevents the assets from going to a new spouse should the beneficiary remarry.
The QTIP trust has certain tax advantages for the surviving spouse.
The income paid to the surviving spouse from the QTIP trust qualifies for marital deduction. That means that the assets in the trust are not taxable after the first spouse’s death. Instead, the property becomes taxable after the second spouse's death, with this liability transferring to the named beneficiaries.
QTIP trusts are reported on tax returns using IRD Form 706.
A minimum of one trustee must be appointed to manage the trust, though there may be multiple trustees named. The trustee or trustees will be responsible for controlling the trust and have authority over the management of the assets.
Potential trustees include the surviving spouse, a financial institution, an attorney, or a family member or friend.
The 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 may also be made from the principal if the grantor allows it when the trust is created.
Payments will be made to the spouse for life. Upon the person's death, the payments cease as they are not transferable. The assets in the trust become the property of the listed beneficiaries.
| QTIP | Marital Trust |
|---|---|
| Irrevocable | Irrevocable |
| Only names the spouse as beneficiary | Only names the spouse as beneficiary |
| Unlimited marital deduction | Unlimited marital deduction |
| Defers taxes until spouse's death | Defers taxes until spouse's death |
| Control does not pass to spouse | Control passes to spouse |
| Trust originator controls asset distribution after spouse's death | Surviving spouse controls asset distribution |
Either a QTIP trust or a marital trust can help you achieve similar estate planning goals. The key differences lie in how the assets in the trust are controlled.
A QTIP trust gives the grantor control over how the assets within the trust will be distributed after the death of the surviving spouse.
A marital trust allows the surviving spouse to dictate how the assets are distributed.
Unlike a QTIP trust, a marital trust does not require distributions to the surviving spouse. The surviving spouse controls the trust and makes the decisions.
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.
While QTIPs are similar to marital trusts, there are benefits in certain situations.
A QTIP trust is an irrevocable trust that pays income generated from the assets to a surviving spouse. When that spouse dies, the assets in the trust pass to the beneficiaries named by the grantor.
The two are similar, except that a QTIP is not controlled by the surviving spouse. The surviving spouse receives income generated by the trust. Eventually, the assets will be distributed as the grantor specified.
A QTIP is required to pay all of its income to the spouse beneficiary. There can be no other beneficiaries until that spouse passes away.
QTIP trusts are designed to ensure that your spouse is taken care of for life while the trust remains intact for other named beneficiaries.
QTIPs are not suitable for everyone or every situation. If you're not concerned with how your estate is distributed after your spouse dies, you don't need a QTIP. But if you want to determine how your assets are distributed after your spouse passes on, a QTIP will ensure your wishes are followed.
Article SourcesThe offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Description Related TermsAn annual exclusion is the amount of money that one person may transfer to another as a gift without incurring a gift tax or affecting the unified credit.
A health care power of attorney (HCPOA) is a legal document that allows an individual to empower another to make decisions about their medical care.
Distributable net income is used to allocate income between a trust and its beneficiaries.Next of kin is usually defined as a person's closest living relative: it's someone who may have inheritance rights and obligations.
A trust company is a legal entity that acts as fiduciary, agent, or trustee on behalf of a person or business to administer, manage, and transfer assets to beneficiaries.
A grantor retained annuity trust (GRAT) is a financial instrument used in estate planning to minimize taxes on large financial gifts to family members.
Related Articles:max_bytes(150000):strip_icc()/GettyImages-1164361532-0564fbe401f74f57a4a4c6c0ad02dca6.jpg)
:max_bytes(150000):strip_icc()/11OlderIndiancouplelookingatlaptop-triloks-55fa1f978f0142459b0ab8bcd2c32907.jpeg)
:max_bytes(150000):strip_icc()/zamrznutitonovi-1e6e1af4a5384f5f9814dd3b3d10f895.jpg)
:max_bytes(150000):strip_icc()/christmas-cash--wad-of-american-currency-tied-with-red-ribbon-611319628-ab2093a9addf4a46b6a54817e5eaee21.jpg)
:max_bytes(150000):strip_icc()/amedicalproxymakesatoughdecision-9032d1b721754b4a855d83e8eab90ade.jpg)
:max_bytes(150000):strip_icc()/INV_PeopleinMeetingwithFinAdvisor_GettyImages-1502889269-e1940304793a4e798f1044f08dd8f904.jpg)
We and our 100 partners store and/or access information on a device, such as unique IDs in cookies to process personal data. You may accept or manage your choices by clicking below, including your right to object where legitimate interest is used, or at any time in the privacy policy page. These choices will be signaled to our partners and will not affect browsing data.
Store and/or access information on a device. Use limited data to select advertising. Create profiles for personalised advertising. Use profiles to select personalised advertising. Create profiles to personalise content. Use profiles to select personalised content. Measure advertising performance. Measure content performance. Understand audiences through statistics or combinations of data from different sources. Develop and improve services. Use limited data to select content. List of Partners (vendors)
