What Is a Qualified Terminable Interest Property (QTIP) Trust?

There are many reasons a married couple may wish to create a trust as part of their estate plan. In some cases, a trust can offer certain tax benefits. But on a more personal level, a trust can help manage a more complex family situation, especially those involving multiple marriages or children from different relationships.

The Benefits of Limiting a Spouse’s Access to Your Property

For example, many Florida couples create what is known as a qualified terminable interest property or “QTIP” trust. While this sounds like a mouthful, the basic idea behind a QTIP trust is easy to explain. Essentially, when one spouse dies, the surviving spouse receives income from the assets in the QTIP trust for the remainder of their life. When the surviving spouse eventually dies, the QTIP trust is then distributed to other beneficiaries, such as the couple’s surviving children.

So why go through this process? Why wouldn’t the first spouse simply leave all of their property to the surviving spouse outright? Well, there are a few reasons:

• Let’s say Penny recently remarried. She has two children from her first marriage. By setting up a QTIP trust, Penny’s new husband would receive income from trust after her death, but Penny’s children would receive the principal (and remaining income) of upon their stepfather’s death. By setting things up this way, the husband could not alter Penny’s estate plan after her death.
• Or perhaps Penny’s new husband is carrying a large amount of personal debt. If Penny were to leave the assets in her trust to him outright, his creditors could conceivably go after that property. But if the property remains in a QTIP trust–thereby limiting her husband’s control–those assets would largely be shielded from his creditors.

Limiting a surviving spouse’s access to property via a QTIP trust can also help protect them against potential scammers. With a QTIP trust there should always be an independent trustee or co-trustee overseeing things. This can be especially helpful when the surviving spouse is elderly or incapacitated.

And as noted above, QTIP trusts can also provide important tax benefits. This is more true for larger estates, i.e. couples with assets that exceed the combined federal gift and estate tax exemption (which is currently $22.8 million). But for these couples, income earned on assets in a QTIP trust are not considered as part of the deceased spouse’s taxable estate. Rather, the property in the QTIP trust is only considered taxable after the second spouse dies, with any subsequent liability transferring to the named beneficiaries.

Get Help from a Lee County, Florida Trust & Estate Planning Lawyer

A QTIP trust is just one of many estate planning options you may wish to consider. Trusts are complex legal instruments by design, however, and you should never attempt to create one on your own. A qualified Fort Myers estate planning attorney can review your situation and help you decide what will work best for you and your family. Contact the Kuhn Law Firm, P.A., at 239-333-4529 today to schedule a free confidential consultation with a member of our estate planning team.

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