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Understanding how QTIP trusts work

On Behalf of | Nov 6, 2023 | Estate Planning |

Two primary purposes of estate planning in Connecticut are to protect your assets and provide a surviving spouse with income after your passing. Several types of trust can accomplish these goals, but one of the most useful is a Qualified Terminable Interest Property Trust (QTIP). This trust provides for heirs while giving an executor flexibility in estate administration.

How QTIP trusts work

QTIP trusts are similar to A/B marital trusts but are more restrictive. The surviving spouse can access a portion of the trust but cannot withdraw the principal and cannot determine the disposition of other trust assets. It’s up to the executor to dispose of the assets, according to your wishes in estate planning documents. While a QTIP does not qualify for the marital tax deduction, the executor can claim the marital deduction for amounts transferred to it by making an election on your estate tax return.

QTIP trust benefits

The uncertainty of your estate tax situation prompts many people to establish a QTIP. Giving your executor the flexibility to decide how to handle these assets can leave more for your heirs by taking advantage of graduated tax brackets. The more compelling reason may be limiting your spouse’s ownership rights over the assets. This advantage makes QTIP trusts particularly useful for second marriages, as they ensure the assets pass to your children.

How to protect your assets

To protect assets, various trusts and other financial instruments are available. Considering options is especially crucial for individuals with large estates where estate taxes are a distinct possibility. For example, setting up a charitable trust can give you money to live on in your later years while leaving the remainder to a favorite non-profit organization after your passing.

Remember that estate planning is flexible. As you accumulate wealth, you can add trusts and other provisions to your estate plan to ensure that your wishes are met. Review your documents every few years to see if you need to make any changes. You should also ensure you have power of attorney for healthcare and financial decisions established in case of incapacitation.