A QTIP trust is a special kind of trust, especially useful in second marriages, designed to protect couples and their children. Like other kinds of trusts, a QTIP trust serves a specific purpose, and is only appropriate for those whose circumstances match the goals the QTIP trust achieves. To better understand what a QTIP trust is, what it does, and why you might need one, let’s take a closer look.
What is a QTIP Trust?
The term ‘QTIP’ is an acronym meaning “qualified terminable interest property.” A QTIP trust is a legal entity that can own property. Specifically, a QTIP trust is designed to own a family home and to allow both spouses to live in the home as possible while preserving the home for the children of one or both of the spouses.
How does a QTIP Trust Work?
A QTIP Trust owns property on behalf of a beneficiary. The beneficiary can use the property, but is not the legal owner. Unlike many other types of trusts, a QTIP trust owns its property for the benefit of two different types of beneficiaries.
Here is how the trust works. A person establishes the QTIP trust, transfers title to his or her home into the trust’s name, and names his or her spouse as a lifetime beneficiary. If this is the husband in a second (blended) marriage, he names his children from his previous marriage as the final beneficiaries. His spouse will be able to live in the home after he dies, and when she dies, his children inherit the home.
By doing this, a QTIP trust allows a wealthy family to keep a home in the family, but prevents the surviving spouse from selling the home before the children can inherit it.
Who needs a QTIP Trust?
QTIP trusts are mostly used by wealthy, blended families. With a QTIP trust, a married couple can ensure that both of them will be able to live in their family home for as long as they live. Should one spouse die, the surviving spouse can remain in the home indefinitely, but is prevented from selling or otherwise transferring the home. After the surviving spouse dies, the home will be distributed to the final beneficiaries.
This is ideal for families in which a parent has remarried, wants to take care of his or her current spouse, but wants to leave the home as an inheritance to his or her children.
Not every wealthy or blended family will need a QTIP trust. Please talk to us before you create any type of trust.