A Qualified Interest Terminated Property Trust (QTIP) allows a person called the settlor to leave assets to the surviving spouse and determine how the assets of the trust will be divided upon the death of the surviving spouse.
Under a QTIP trust, income is paid to the surviving spouse and the balance is held in trust until the death of that spouse. At this point, the remainder is paid to the beneficiaries specified by the grantor.
QTIP trusts are used in estate planning and are especially useful when the beneficiaries exist from a previous marriage, but the grantor dies before the next spouse.
In the QTIP trust fund, inheritance tax is not charged at the time of the death of the first spouse, but is determined after the death of the second spouse.
A QTIP trust is created by selecting a QTIP trust on the executor’s tax return.