When most people in Texas think about a Q-tip they think of the small stick with white fluff attached to both ends that can be used to clean their ears. If you talk to an estate planner however, you’ll get a completely different answer.
So what is a QTIP and what is their function? Like most acronyms, QTIP stands for qualified terminable interest property, which is actually a trust established for a beneficiary. But it has a twofold purpose. One, it aims to leave part of your estate to someone other than your spouse; and two, it is often times used to guarantee inheritance to children from a previous marriage.
As many estate planning attorneys will tell you, QTIP trusts are generally used in second or third marriages when a person wants to guarantee that money goes to children from previous marriages instead of their current spouse in the event that they pass away. It is important to point out that you do not necessarily have to be divorced in order to establish a trust for your children. In fact, many estate planners suggest doing so regardless, as it gives clear directions as to how you want your assets to be divided after you pass.
It is important to remember that a QTIP trust is actually part of the will and not a separate document. Also, a person does not put any assets into a QTIP fund while they are alive. This is because funds are not distributed until after the trustor has already passed therefore it is possible for more money to be given to a beneficiary in the end.
Married couples may use a trust fund as a way of reducing their estate taxes as well which can actually save them money in the long run. Any questions you may have regarding trusts may be directed towards an estate planner who can help figure out which trust tool is right for your situation.
Source: The New York Times, “Yours, Hers, and the Kids’: Estate Planning After Remarrying,” Charles DeLuente, Oct. 19, 2012