A qualified terminable interest property (QTIP) trust is an estate planning tool that allows the person making the trust (the grantor or settlor) to leave assets for their surviving spouse and direct how the assets remaining in the trust will be distributed to named beneficiaries at the death of the surviving spouse. QTIP trusts are irrevocable (cannot be revoked). At least one trustee (person or entity) must be appointed by the trust to manage the assets of the trust.
A QTIP trust will usually provide regular payments to the surviving spouse—often from the income generated by the assets in the trust. QTIP trusts are often used when the grantor remarries and has children from a previous marriage. If the grantor dies before the grantor’s subsequent spouse dies, the QTIP trust will make income payments to the subsequent spouse and hold the principal assets that were placed in the trust until the surviving spouse dies—at which point the assets will be distributed to the trust beneficiaries.
At the death of the grantor, the executor of the grantor’s estate will file the estate’s tax return and make an election (the QTIP election) of which assets will be placed in the QTIP trust by listing them on a schedule to the estate’s tax return. The assets in a QTIP trust are not subject to estate tax at the grantor’s death but are subject to estate tax at the death of the grantor’s surviving spouse.
In Texas, a Qualified Terminable Interest Property (QTIP) trust is a type of trust designed to provide financial support to a surviving spouse while maintaining control over the distribution of the trust assets after the surviving spouse's death. This is particularly useful in situations such as second marriages, where the grantor wishes to provide for the current spouse but also wants to ensure that the remaining assets are passed on to children from a previous marriage or other beneficiaries. The QTIP trust is irrevocable, meaning it cannot be altered or revoked once it has been established. The trust is managed by at least one trustee who is responsible for overseeing the assets and ensuring that the income is distributed to the surviving spouse as stipulated in the trust agreement. For tax purposes, the assets placed in a QTIP trust are not subject to estate tax upon the death of the grantor; instead, they become taxable after the death of the surviving spouse when the assets are transferred to the final beneficiaries. The executor of the grantor's estate must file an estate tax return and make a QTIP election to specify which assets are to be placed in the trust. This election allows the assets to qualify for the marital deduction, deferring estate taxes until the surviving spouse's death.
