What is the purpose of a QTIP trust?
A qualified terminable interest property trust (“QTIP trust”) allows a spouse to give a life estate in property to his or her spouse without incurring the federal gift tax. The donee (recipient) spouse has an income interest in the trust and does not have a power of appointment over the principal.
What is the purpose of a QTIP?
A qualified terminable interest property (QTIP) enables the grantor to provide for a surviving spouse and maintain control of how the trust’s assets are distributed once the surviving spouse dies.
What is the advantage of a QTIP trust?
The QTIP trust serves like a “crystal ball” for the uncertainty of the future in marital trust planning. Not only does it provide for your surviving spouse and other loved ones after your death, but it also offers flexibility to your executor in maximizing your federal estate tax savings.
Is a marital trust the same as a QTIP?
QTIP Trusts function almost the same as Marital Trusts. They’re both irrevocable trusts that can only name the surviving spouse as beneficiary during that spouse’s lifetime. However, the major distinction between the two is that with a QTIP Trust, the grantor of the trust maintains control of it, even after death.
Why is it called QTIP trust?
A QTIP trust, despite its silly name, is a valuable estate planning tool. QTIP, or “Qualified Terminable Interest Property” is a name derived from the tax law that legalises the tax benefits of the trust.
Which is a disadvantage of a QTIP trust?
The main disadvantage of a QTIP trust is conflicts it can generate between the remainder beneficiaries and the surviving spouse. These conflicts can relate to tax strategy, investment decisions, and overall trust administration.
Is a QTIP trust included in the surviving spouse’s estate?
The QTIP trust terminates when the surviving spouse dies, and the assets are distributed to the final beneficiaries. The trust assets are counted as part of the gross estate of the surviving spouse and taxes must be paid if it is valued over the exemption limit.
Can surviving spouse be trustee of QTIP trust?
Your executor or trustee must elect QTIP treatment for the trust. Depending on the principal invasion standard and nature of assets in the trust, the surviving spouse may be able to act as her own trustee over the QTIP.
Can a QTIP trust distribute principal?
The QTIP trust names his wife and his son as Co-Trustees. The Trust gives all the income earned therefrom to his wife, and also allows for principal distributions to her for her health, education, maintenance or support. Whatever is left in the trust at her death shall be distributed to his children.
What is the difference between a QTIP trust and a bypass trust?
Upon the first spouse’s death, the assets in the trust divide into three separate trusts, namely: the “Survivor’s Trust”, the “Bypass Trust” and the “QTIP Trust.” The Bypass Trust will generally hold the deceased spouse’s assets which equal the available exclusion amount; the QTIP Trust will hold the balance of the …
Is a QTIP trust revocable?
A QTIP Trust is an irrevocable trust used to support the Surviving Spouse that, because of its wording and a required tax election, is eligible for the Marital Deduction, and is therefore included in the estate of the Surviving Spouse.
Is a QTIP trust a simple trust?
In this article, we will discuss the benefits and limitations of the qualified terminable interest property (QTIP) trust. Despite its complex name, the principle behind a QTIP trust is fairly simple, and it can provide a number of important benefits under the right set of circumstances.
Can a QTIP trust have a power of appointment?
With a QTIP trust, no one (including the surviving spouse) may be given the power to appoint trust property to anyone as long as the surviving spouse is alive. Therefore, the trustee of the trust cannot be given the power to transfer trust property to your children as long as the surviving spouse is alive.
Do QTIP assets get step up in basis?
The assets that are paid to the QTIP will get a step-up in basis. When the surviving spouse later passes away, the entire QTIP will be included in their taxable estate. This means the assets in the QTIP will get a second step-up at that time. Not such a bad deal.
Can you gift from a QTIP Trust?
The answer lies in the use of a QTIP Trust. During the husband’s lifetime, he can make unlimited marital gifts to his wife. If he makes them into a QTIP Trust, the assets are qualified for the marital deduction for gift and estate tax purposes.
What happens if QTIP election is not made?
If the QTIP election is not made, then all the decedent’s assets will remain in the Bypass Trust. Let’s revisit the example above. H and W created a trust in 2005 that contained a Clayton Election. Thus, when H died in 2020, the estate was worth $30 million.
Can spouse allocate GST to QTIP?
This election enables the GST exemption of the spouse who creates the QTIP trust to be allocated to the trust without loss of the gift or estate tax marital deduction.
When must a QTIP election be made?
Many planners are of the understanding that a QTIP election must be made for a testamentary trust on a federal estate tax return that is timely filed within 15 months following the decedent’s date of death (the general deadline of 9 months following the decedent’s date of death, plus a 6 month automatic extension).
Who should be QTIP trustee?
You can name your spouse to be the trustee, choose one of your adult children, or pick a disinterested third party. Professionals will serve as trustees for a fee (usually a percentage of the value of trust assets), but only if the value of the trust assets is large enough.