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What does a QTIP trust do?

On Behalf of | Oct 17, 2023 | Estate Administration

A qualified terminable interest property (QTIP) trust gives a person in New Jersey the right to control what happens to their assets if a spouse outlives them. The surviving spouse receives support from this trust, and then, the benefits go to the first spouse’s beneficiaries of choice.

What are the goals of a QTIP trust?

QTIP trusts serve two important estate planning purposes. These purposes include protecting beneficiaries and reducing estate taxes.

QTIP trusts are testamentary trusts that take effect when the creator dies. Once signed and funded, these trusts are irrevocable and may not be changed. Any income that goes to a surviving spouse is usually not subject to estate taxes.

What are the most important goals of a QTIP trust?

These trusts can provide lifelong income for a surviving spouse without taking away the inheritance from other beneficiaries. For example, this arrangement is often used with children from a prior marriage.

These trusts qualify surviving spouses for the IRS marital estate tax deduction. In most cases, the taxes only apply to assets over $12.92 million.

Another advantage is the certainty of the amount received. Although property ownership is given to the intended beneficiaries, the surviving spouse receives interest from the assets.

How is a QTIP trust set up?

You can set up a QTIP trust using IRS Estate Tax Form 706. On Schedule M, list the assets and their value in Part A. Surviving spouses must be U.S. citizens and receive income from the QTIP trust at least once a year.

The QTIP trust requires a trustee, often another family member besides the spouse or another trusted person. Surviving spouses can request the trustee convert non-income-earning assets into assets that earn income, making a viable option for estate planning.

Setting up trusts and other plans may seem overwhelming. However, it is one of the best ways to make sure your estate is distributed as you wish.