What is an inter vivos QTIP trust?

What is an inter vivos QTIP trust?

Lifetime Marital Trusts, also known as Inter Vivos QTIP Trusts. An Inter Vivos QTIP Trust is a planning technique utilized in situations where one spouse does not own in his or her individual name sufficient assets to utilize all of his or her estate and GST tax exemptions.

How does a QTIP election work?

Under a QTIP, income is paid to a surviving spouse, while the balance of the funds is held in trust until that spouse’s death, at which point it is then paid out to the beneficiaries specified by the grantor.

What are the requirements for a QTIP trust?

Legally, to qualify as a QTIP trust, the trust is required to pay all of its income to the spouse beneficiary, and there can’t be any other beneficiaries during that spouse’s lifetime. This allows couples to ensure that a spouse is taken care of financially.

What is QTIP property and how does it qualify for the marital deduction?

A qualified terminable interest property trust (“QTIP trust”) allows a spouse to give a life estate in property to his or her spouse without incurring the federal gift tax. The donee (recipient) spouse has an income interest in the trust and does not have a power of appointment over the principal.

What is the benefit of a QTIP trust?

The QTIP trust serves like a “crystal ball” for the uncertainty of the future in marital trust planning. Not only does it provide for your surviving spouse and other loved ones after your death, but it also offers flexibility to your executor in maximizing your federal estate tax savings.

What is the difference between a marital trust and a QTIP trust?

QTIP Trusts function almost the same as Marital Trusts. They’re both irrevocable trusts that can only name the surviving spouse as beneficiary during that spouse’s lifetime. However, the major distinction between the two is that with a QTIP Trust, the grantor of the trust maintains control of it, even after death.

Which is a disadvantage of a QTIP trust?

The main disadvantage of a QTIP trust is conflicts it can generate between the remainder beneficiaries and the surviving spouse. These conflicts can relate to tax strategy, investment decisions, and overall trust administration.

Why would you make a QTIP election?

The QTIP Election To create the QTIP trust, the executor must make a “QTIP election” on the estate tax return that’s filed for the estate of the first spouse to die.

Who pays the taxes on a QTIP trust?

At the death of the second spouse, estate tax is due on all of that spouse’s property, including the assets that were held in the QTIP trust. For deaths in 2022, federal estate tax will be owed only if the assets exceed $12.06 million in value.

Can surviving spouse make gifts from QTIP trust?

The answer lies in the use of a QTIP Trust. During the husband’s lifetime, he can make unlimited marital gifts to his wife. If he makes them into a QTIP Trust, the assets are qualified for the marital deduction for gift and estate tax purposes.

Can surviving spouse be trustee of QTIP trust?

Depending on the principal invasion standard and nature of assets in the trust, the surviving spouse may be able to act as her own trustee over the QTIP. There are a multitude of reasons why a QTIP trust may make sense for your estate plan.

Does a QTIP trust file an income tax return?

The assets in a QTIP enjoy protection from taxation since it falls under marital deductions. However, money within the Trust does become subject to taxation when the second spouse passes. The liability for these taxes will simply fall to other named beneficiaries, such as children or other relatives.