What is a QTIP?
QTIP stands for Qualified Terminable Interest Property. A QTIP is a trust that can be used as a tool to avoid transfer tax on the first spouse’s death where a married couple wants to take advantage of the marital deduction. The deceased spouse establishes the ultimate disposition of the property, rather than the surviving spouse including the property in their estate.
During the couple’s lifetime, the surviving spouse receives all income from the principal and, in some cases, has access to the principal. If the surviving spouse is not a citizen of the United States, then QTIP treatment is not available. There is an option under code section 2056 called a QDOT (Qualified Domestic Origin Trust) which is somewhat similar.
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