Qualified Terminable Interest Property Trust
Each spouse can set up a QTIP trust, leaving assets to the other in trust. When the first spouse dies, the survivor gets what is called a “life estate” in the assets that are left to the QTIP trust—that is, the survivor is entitled to any income the assets produce, and in the case of real estate, to its use. Only the surviving spouse can be named as the life beneficiary. The survivor does not, however, have full ownership of the trust assets and cannot sell them or give them away.
When the second spouse dies, trust assets go to the “final beneficiary” named in the trust. Commonly, the final beneficiaries are children from the other spouse’s previous marriage.
Preparing a QTIP trust (and then deciding, after one spouse dies, whether or not to use it) isn’t a do-it-yourself job. These trusts must be carefully drafted so that they don’t run afoul of IRS rules. But even if you could draw up the trust document yourself, you would still need good advice from an experienced lawyer before deciding whether or not a QTIP trust is right for your family. A QTIP is appropriate only in certain situations, and there may be other estate planning strategies that suit you better. An AB or bypass trust, for example, is simpler and may accomplish your goals.