Types of Trusts; QTIP Trusts, Living Trusts
Questions and Answers Regarding Trusts
What is the QTIP trust?
Answer: A QTIP is a Trust that is established to qualify for the marital deduction. QTIP stands for Qualified Terminable Interest Property.
It allows certain property to qualify for an estate and gift tax marital deduction even though ordinarily it would not qualify for such tax deductions. One type of QTIP property that can qualify for a marital tax deduction are trusts providing income to a surviving spouse for life and, after the spouse dies, the remainder will to the children.
Question: What is a Trust?
A trust is a fictitious legal entity which owns assets for the benefit of a third person (beneficiary). The Grantor (or settlor) of the Trust is the person who set up and gave money to the Trust. The Trustee of the Trust is the person charged with keeping the assets safe, invested properly, and finally distributed to the Beneficiary at the proper time. The Grantor can decide how the money must be kept (in interest bearing accounts, in real estate, or only in government insured FDIC accounts, etc.), and when it may be distributed. The Grantor of the Trust can also be the Trustee of the Trust, if the Grantor decides to set the Trust up in such a manner (e.g., Grantor sets himself up to be the Trustee of a Trust for his child).
Question: What is a Living Trust?
Answer: A Living Trust is a type of trust created by the grantor during his or her lifetime and is also referred to as an inter vivos trust.
A Living Trust is an effective way to provide lifetime and after-death property management and estate planning. When a person sets up a Living Trust, he is the Grantor; anyone he names within the Trust who will benefit from the assets in the Trust is a beneficiary. In addition to being the Grantor, he can also serve as his own Trustee (Original Trustee). As the Original Trustee, he can transfer legal ownership of his property to the Trust. While this can save his estate from estate taxes when he dies, it does not alleviate his income tax obligations.
Within a Living Trust, the Grantor must provide the name of a Successor Trustee who will take over the management of the Trust if the grantor dies or becomes incapacitated. He won't have to go through the court to appoint a successor trustee. After his death, his Successor Trustee will either terminate the Trust and distributes the assets to the beneficiaries you named in the Trust, or he will continue to maintain the Trust on behalf of the beneficiaries, depending on the terms of the Trust.
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- Types Of Trusts
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