A qualified terminable interest property trust is a marital trust. The interest accumulated from that trust is given to a surviving spouse, while the trust assets remain in the trust. If the surviving spouse dies, the trust assets are given to other beneficiaries as were determined originally in the trust. This is used a lot when there are blended families, or spouses with children from previous marriages. One of the most common arguments during wills is that neither spouse wants the other spouse’s children to get their money upon their death. They can instead choose to give the interest of their money to their surviving spouse, and then the trust assets themselves would go to their children.
The advantages of a Q-TIP Trust are that it takes care of children from another marriage and it gives the surviving spouse money to live on.
The assets of the trust stay in the trust and the interest earned by the trust goes to the surviving spouse. When the surviving spouse dies, the assets go to the children. The children would then pay taxes based on the amount the trust is over the exempt limit at that time. So, as long as the surviving spouse can live on the interest, it’s a much less expensive way to give them the money.
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