What is a QTIP (marital deduction) trust?
The QTIP trust allows the first to die spouse to specify who will receive his or her assets after the surviving spouse dies. Use of the QTIP trust also permits the deferral of death taxes on the assets until the death of the surviving spouse. According to the IRS, the first death is free. QTIP stands for “qualified terminable interest property”. The income earned on assets in a QTIP trust must be given to the surviving spouse for his or her lifetime. After the death of the surviving spouse, however, the assets then pass to beneficiaries chosen by the first spouse to die. This can be an important planning tool if there are children from a prior marriage. Even if there are no children of a prior marriage, some clients use this type of trust to prevent a subsequent spouse of the survivor from diverting or wasting estate assets. A QTIP trust. is often used in tandem with a bypass or credit shelter trust in order to maximize estate tax savings and creditor protection.
