How do you set up a QTIP trust?
To create the QTIP trust, the executor must make a “QTIP election” on the estate tax return that’s filed for the estate of the first spouse to die. To make the election, the executor lists, on a schedule attached to the estate tax return, the assets that are to go into the QTIP trust.
What is a QTIP property?
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.
Which is a disadvantage of a QTIP trust?
The primary disadvantage of a QTIP trust is the potential conflict between the surviving spouse and the remainder beneficiaries that may arise in regard to investment strategy, tax strategy, adequacy of accountings, and trust administration.
Is a QTIP a marital trust?
A QTIP trust is a marital trust designed to provide for your spouse after your death while protecting your assets for future generations. The QTIP trust also offers flexibility to your Executor in maximizing your federal estate tax savings.
What is the difference between an AB trust and a QTIP trust?
B Trusts also do three things differently than A Trusts and QTIP Trusts: They keep the trust-owned assets out of the surviving spouse’s estate, trust-generated income does not need to be paid out, and anybody can be a beneficiary of trust assets during the lifetime of the surviving spouse.
Does a QTIP trust pay income tax?
A QTIP trust is similar to a marital trust, which also holds the assets of the spouse who dies first, but the QTIP trust has more restrictions. When one spouse dies, the trust assets transfer into a QTIP trust and no estate taxes are paid at this time.
What kind of trust is a QTIP trust?
A QTIP trust (officially a qualified terminable interest property trust) is a type of trust that allows someone to provide income for their surviving spouse and bequeath property and assets to a different set of beneficiaries.
What happens to QTIP assets when a surviving spouse dies?
The QTIP trust pays an income to the surviving spouse who may also use some of the trust assets for their own benefit, but the trust assets are inherited by someone else of your choosing, like your child from a previous marriage. When the surviving spouse dies, the QTIP property is includable in their gross estate.
When is estate tax assessed on a QTIP?
With a QTIP, estate tax is not assessed at the point of the first spouse’s death, but is instead determined after the second spouse has passed. A QTIP is established by making a QTIP election on the executor’s tax return.
What is a qualified terminable interest Property Trust?
A qualified terminable interest property is an irrevocable trust that enables a grantor to provide for a surviving spouse, and other beneficiaries.