How does a QTIP trust work in Pennsylvania?

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Establishing an estate plan can be overwhelming as there are so many options you can utilize. From mirror or holographic wills to spendthrift and Totten trusts, you may be confused by the names and purposes of these tools. However, many serve vital purposes, so familiarizing yourself with these options is critical. One such option is a QTIP trust. If you’ve never heard about this option, it’s necessary to understand what this entails and who can benefit from establishing one. The following blog explores what you must know about this option and how PA trust attorneys can help you explore this option.

What is a QTIP trust?

A Qualified Terminable Interest Property (QTIP) trust is established to provide security and funds for the spouse of the deceased upon their passing.

QTIP trusts are similar to marital trusts in that they are both irrevocable, only name the spouse as the beneficiary, deter taxes until the spouse passes away, and provide an unlimited marital deduction. The only difference is that with a QTIP trust, control of the trust is not passed to the spouse, and they will receive income from the trust rather than distributing the assets themselves.

Who should consider establishing one?

Because these are similar to marital trusts, you may wonder what the point of establishing a QTIP trust is. Generally, these are rigid, meaning they are perfect for those who are nervous about the financial responsibility of their spouse. This is because it provides a set amount of funds. Your spouse can’t change the amount, as this type of trust is irrevocable.

Also, those with children from a prior marriage can benefit from a QTIP trust. This allows you to set aside an amount for your spouse to use while ensuring the rest of the inheritance goes to their other beneficiaries, usually children from a prior marriage.

How can I set one up?

If interested in setting one up, you’ll need to make the election to establish one. This is on your estate tax return Form 706, as you must list all the assets you’ll place the trust. You should also name a trustee, who is responsible for managing the trust and the assets. The executor is responsible for the final filing, which can be done when filing tax returns.

It’s important to note there are additional requirements you should be aware of. Your spouse must receive income at least once a year from the QTIP trust. Additionally, if the assets held in the trust aren’t garnering funds to create income, then they can ask the trustee to convert them into profitable property, or something that produces an income for them.

As there are many considerations you must make when establishing a QTIP trust, it’s essential to work with an experienced attorney for this process. Unfortunately, you may find that you’re unsure how to proceed. It’s in your best interest to seek assistance for this matter, as the last thing you want is to leave your assets up to chance. At Friedman Schuman, we understand the complexities of this matter. As such, we will do everything possible to assist you with these matters. Contact us today to learn how we can help you.

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