Types of Trusts

Is a QTIP Trust right for me?

Schedule an appointment with The Taormina Firm to learn more about how a QTIP Trust could help protect you and your family from an Estate Tax burden.

Introduction

A Qualified Terminable Interest Trust ("QTIP Trust") is a special type of Revocable Living Trust that is used to minimize estate taxes imposed upon the Settlor's estate after their death.

Description

Right now, the Federal Estate Tax kicks in when a person has more than $11.58 million. However, by 2026, the Federal Estate Tax exemption will sunset and go back to $5 million, meaning that any estate with assets over $5 million will be subject to the Estate Tax. The average American household need not worry about the Estate Tax; but if you have an estate worth more than the Estate Tax exemption, there are planning options available to you.

One of the best ways to lessen your Estate Tax burden is by creating a Revocable Living Trust that contains QTIP provisions. Unlike a traditional Revocable Living Trust which is typically done as a joint trust, a married couple with Estate Tax worries will need to form two nearly identical but separate Revocable Living Trusts, each containing QTIP provisions. So what does this mean?

When the first Settlor dies and is survived by his/her spouse, the QTIP Trust will split the assets of each Revocable Living Trust into two separate trusts, one is the Marital Trust (also known as the QTIP Trust) and the other is the Family Trust (a credit shelter trust). The Marital Trust is for the benefit of the surviving spouse for his/her lifetime, and the Family Trust is for the benefit of the Settlor's beneficiaries.

The Marital/QTIP Trust allows the first spouse to die to take advantage of the unlimited marital estate tax deduction while still controlling where the assets go when the surviving spouse dies. The Marital/QTIP Trust becomes irrevocable (meaning the terms of the Trust cannot be changed) at the time of the Settlor's death, which is advantageous to the Settlor in case his/her spouse remarries.

Likewise, the Family Trust is irrevocable upon the Settlor's death, and provides for the health, education, support, and maintenance of the Settlor's descendants. As with a traditional Revocable Living Trust which staggers distribution of assets, the Family Trust can be set up to where the Settlor's children do not receive trust assets until they reach a certain age. The Family Trust also serves as a credit shelter trust, meaning that the creditors of the Settlor's descendants cannot reach the property held in trust for the descendants until a distribution is made.

To learn more about QTIP Trusts or Estate Tax planning, please contact Vince Taormina, an estate planning attorney with The Taormina Firm, to discuss your options.