Generally speaking, the QTIP trust is established as part of a multi-trust strategy which provides maximum flexibility for the surviving spouse. Many people prefer to hold some assets in a “revocable trust.” A revocable trust allows the grantor to transfer assets into or out of the trust, while trust provisions may be altered or outright cancelled at any point if needed.

However, a revocable trust has limitations from the perspective of taxation and wealth transfers. It is common for an estate plan to establish an A-B trust along with a QTIP. Upon the passing of a spouse the A-B trust may transition to two or three trusts:

• One for the needs surviving spouse
• Perhaps a second “family trust”
• QTIP Trust

The goal of this strategy is to provide maximum flexibility and control for the surviving spouse while protecting assets from creditors and reducing or eliminating tax exposure.

In this structure the QTIP trust allows the surviving spouse to receive most or all of the benefits of marital assets and the income they generate. When the surviving spouse ultimately passes, the QTIP passes to designated heirs and beneficiaries.

This is especially beneficial for blended families and planning for children of previous marriages. The QTIP allows the surviving spouse to enjoy the maximum benefits of marital deductions under estate tax laws. If the value of the estate exceeds estate tax limitations, it can still serve to defer payment of estate taxes until after the surviving spouse has passed.