How to Draft a QTIP Trust Provision

A QTIP provision is drafted in a marital trust

A "Qualified Terminal Interest Property" (commonly called QTIP) provision is a common tool in estate planning. The QTIP provision can be found in marital trusts (a trust formed for the benefit of a spouse). The combination of the provision and the trust makes the QTIP Marital Trust. The most common use of the QTIP Marital Trust is for blended families in which one spouse (the grantor) wishes to provide for children and/or grandchildren who are not a result of the current marriage. The QTIP provision in this trust says that the living spouse will receive income during his or her lifetime, but after the death of that spouse, the trust will benefit the children outside of the marriage (children from the current marriage can be included as well). This prevents the spouse from favoring any children over the other after the grantor's death. An effective QTIP provision must be drafted correctly. A lawyer will draft the entire trust document, including this provision.

Things You'll Need

• Marital trust
• QTIP provision

Instructions

1. Direct that all current income be given to the spouse. In order for a QTIP provision to be effective, the spouse must receive all current income. This direction is worded in the trust document. For example the document might say something similar to "I direct all income generated from this trust to be paid to my spouse, [name] for the duration of her life..."

2. Ensure that the spouse does not have the right to dispose of the property as he or she wishes. This ensures that the original intentions (providing for children outside of the marriage) of the grantor are met and the living spouse cannot change those intentions. This provision should be explicitly stated in the trust document as a power that the spouse does not have.

3. Designate the desired children as remainder beneficiaries. They will begin receiving income after the death of the spouse. The designation of these beneficiaries is laid out in the trust document as well.

Tips & Warnings

• Another purpose of the QTIP Marital Trust is to defer estate taxes. This is done by use of the marital deduction which states that a spouse can pass an unlimited amount of assets to the other spouse at death without paying estate or gift taxes. Estate taxes are then paid on the gross estate of the second spouse to die.

References

• The Rack Law Firm; The QTIP Marital Trust