A qualified terminable interest property trust, more commonly called a QTIP trust, gives one the ability to decide how their assets will be distributed in the event that their significant other lives longer. This might be something to consider adding to your estate plan in California.
How it works
The trust supports the surviving spouse once the first spouse has passed away. After they, too, have passed away, everything that remains of the assets will be transferred to the beneficiaries that the first spouse chose.
A couple of common scenarios exist in which a QTIP trust may make sense to have in your estate planning wheelhouse. This tool can be a way to offer financial protection to some of your beneficiaries if there are any concerns. It’s a way to prepare for the contingency that the spouse who survives gets remarried or has more kids. QTIP trusts also make sure the surviving spouse is financially protected.
The other main reason to consider a QTIP trust is that it may lower your estate taxes. Keep in mind, though, that estate taxes generally don’t factor in unless you have a particularly large estate.
This estate planning tool falls into the category of testamentary trust. The grantor is the one who creates the trust, and once they pass away, it goes into effect.
Pros and cons
QTIP trusts come with the benefit of ensured stability by means of a financial safety net for the surviving spouse. It’s a way to ensure they’ll have an income for the rest of their lives.
The main drawback is that this is a type of irrevocable trust, which means you can’t make alterations once they’re made. If things change in your life situation, such as finances or family, it may make things difficult.