A QTIP trust, or Qualified Terminable Interest Property trust, is a useful estate planning tool suitable for some people in specific circumstances. Like many other types of trusts, QTIP trusts allow you some specific abilities that you otherwise do not receive should you own property as an individual or as a joint owner. QTIP trusts are often included in estate plans created by people in blended family situations because people want to preserve inheritances for their spouses and for children from a previous relationship. Today we are going to ask several questions about what a QTIP trust is, what it does, and how it might benefit you.
A QTIP trust is, like any other trust, designed to allow specific people the benefit of using or having access to property, while at the same time not being the legal owner of that property. When you craft a QTIP trust you will take some of your property and transfer it into the trust’s name. (Note, you can make this transfer either while you are still alive, or after you are dead by including the transfer as a part of your last will and testament.) You will also name beneficiaries who will have the legal ability to use or benefit from that property. In this respect, a QTIP trust is just like any other kind of trust you might make.
The key difference comes in that with a QTIP trust you will have to name two beneficiaries: the lifetime beneficiary and the final beneficiary. The lifetime beneficiary receives the right to use the trust property throughout the remainder of his or her life, while the final beneficiary becomes the owner of the trust property after the lifetime beneficiary dies.
QTIP Trusts and Blended Families
The primary purpose for which most people use a QTIP trust is to provide for a current spouse and children from a previous relationship. For example, let’s say that you had two children with your previous spouse, but have subsequently divorced and remarried. You want to provide for your current spouse in your estate plan, and decide that leaving him or her your real estate, including the family home, is your best option. However, you also want to leave an inheritance to your children, but don’t want to dilute the value of your home by liquidating it and distributing the money to everyone at the time of your death.
In such a situation, using a QTIP trust is the ideal solution. If you name your spouse as the lifetime beneficiary, your spouse will have the ability to live in the home for the remainder of his or her life, but will not have the ability to sell it or otherwise get rid of the home. Once your spouse dies, your children will then inherit the property as an inheritance, and can sell it and split the proceeds.