Redding, California, Law Blog

A guide to QTIP trusts in California

On Behalf of | Oct 12, 2023 | estate planning, ESTATE PLANNING - Trusts

If you are happily married and have substantial wealth in California that could be subject to federal taxes, you may want to consider a QTIP trust for your partner. Here’s what it does.

Understanding a QTIP trust and how it works

From the basics, trusts are legal arrangements that allow people to transfer their assets to others while still retaining some control over them. A QTIP (Qualified Terminable Interest Property) trust also does the same thing but with specific conditions attached to it. The grantor sets up the trust and transfers assets into it, which a trustee will then manage for the surviving spouse’s benefit. The difference is that with a QTIP trust, the surviving spouse does not have direct control over the assets; instead, they have the right to receive income from the trust for their lifetime.

Benefits of a QTIP trust

Primarily, people who create these trusts want to avoid the heavy tax burden associated with the transfer of property to a loved one. Since they are irrevocable (the trustee takes full ownership of the trustmaker property), the federal government cannot associate the assets in a QTIP trust with the grantor, therefore making them exempt from estate taxes when they pass on to the surviving spouse.

Moreover, this trust gives the property owner control over asset distribution. A QTIP trust allows the grantor to specify how their carefully chosen trustee will distribute their assets to their spouse and if they would like the remaining principal to also go to their children or other designated beneficiaries after the surviving spouse’s death.

Setting up a QTIP trust is a brilliant strategy to secure your wealth and ensure its distribution according to your wishes while also enjoying tax benefits. Still, it’s important to remember that you should tailor financial decisions to your unique situation. If a QTIP trust seems like something your loved ones could benefit from, it’s worth considering.