Qualified Terminable Interest Property Trust
A Qualified Terminable Interest Property Trust (QTIP Trust ) is a specific form of Marital Deduction Trust. This type of trust is often used in Revocable Trust planning.
Under a QTIP Trust, the surviving spouse has certain rights to the Trust assets during their lifetime, but at the time of their death, their interest in the Trust terminates and the Trust directs those assets to other beneficiaries. This type of trust is frequently used when couples are in their second marriage, and have children from a prior marriage. You would create a QTIIP Trust for your spouse. Upon your death, this Trust would allow your spouse to receive distributions of income and principal during his/her lifetime. Then, upon your spouse’s death, any assets which remain in the QTIP Trust would pass to your children from your prior marriage.
There are parameters for a QTIP Trust, as well as the fact that a QTIP Trust does not automatically qualify for the estate tax marital deduction. Upon filing the deceased spouse’s income tax return, an election on the return would be made, qualifying the assets to pass to the surviving spouse under the QTIP Trust, allowing for the estate tax marital deduction.