Qualified Terminable Interest Property Trust (QTIP Trust or marital trust)

Why Use a Qualified Terminable Interest Property Trust (QTIP Trust)?

If you created a Bypass Trust, but the assets available exceed the available estate tax credit, or if you want to provide a stream of income for the surviving spouse but not total access, a Qualified Terminable Interest Property Trust (or QTIP Trust) can be used.

The QTIP Trust qualifies for the marital deduction even though the surviving spouse does not have total access to the Trust assets. This also allows for a step up in tax basis upon the surviving spouse’s death (as the QTIP Trust is included in the surviving spouse’s taxable estate).

All income must be distributed to the surviving spouse, and no other beneficiary can benefit from this QTIP Trust during the surviving spouse’s lifetime.

QTIP Trust Details

Is it irrevocable or revocable?

The QTIP Trust is irrevocable, meaning it cannot be changed once it is created.

Is a separate tax identification required?

The QTIP Trust does require a separate Tax Identification Number.

Is this subject to estate tax upon my death?

No, a QTIP Trust is included in the surviving spouse’s taxable estate.

Is there creditor protection?

There is creditor protection of the principal of a QTIP Trust. While all income must be distributed and thus exposed to the surviving spouse’s creditors, undistributed assets would remain protected.

What assets can be placed in this type of Trust?

Any assets can be placed into a QTIP Trust. The surviving spouse can also convert non-income-producing assets into income-producing assets.

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