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A QTIP trust, also known as a qualified terminable interest property trust, is a kind of trust that enables a spouse to support their surviving spouse while still maintaining control over the final distribution of their assets.
In a QTIP trust, the "grantor"—the spouse who establishes the trust—transfers assets into the trust and names their surviving spouse as the recipient of the trust's income for the balance of their lives. The remaining trust assets are dispersed in accordance with the trust's provisions, which are established by the grantor, after the death of the surviving spouse.
The QTIP trust can be helpful for people who want to support their surviving spouse while also keeping control over how their assets are distributed. When the grantor had children from a prior relationship or wishes to make sure that assets are handed to particular people or organizations, the trust can be especially essential since it gives the grantor control over how the assets are ultimately dispersed after the surviving spouse's death.
Because the assets transferred into the trust are not subject to estate tax upon the grantor's passing, QTIP trusts also offer some tax advantages. Instead, the assets in the trust are exempt from inheritance tax until the death of the surviving spouse. At that point, the trust's assets become subject to estate tax. This may reduce the grantor's estate's overall tax obligation.
