Is a QTIP Trust Revocable or Irrevocable? Surprising Answer

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Paul Sundin, CPA

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QTIP trusts have been around for a long time and they work great in the right situation. But there is one question we often get: is a QTIP trust revocable or irrevocable?

Understanding the difference between revocable and irrevocable trusts is critical when it comes to estate planning. Most people are familiar with traditional grantor trust that is revocable. The person who grants the assets can take money in and out of the trust and change the trust as they see fit. As such, the trust is disregarded for tax purposes.

But a revocable trust cannot be changed. Once assets are placed in the trust they must remain there under the terms of the trust. The trustee will have limited control over the assets but will still need to follow the guidelines established in the trust.

Revocable or Irrevocable?

A QTIP trust is an irrevocable trust. Once assets are placed into the trust for the surviving spouse they will have limited control except for receiving annual withdrawals of income. But the surviving beneficiaries which are normally children, will receive the remainder of the assets at the death of a spouse. These terms cannot be changed and that’s why they were established as irrevocable upfront.

Revocable Transfers

If, on the date of death, the decedent alone, or in conjunction with another person, retained the power to alter, amend, revoke or terminate a transfer of property, then that property is included in the gross estate of the transferor for estate tax purposes.

Also included in the gross estate is any property to which the decedent has such power but is relinquished of within three years of his death (§2038). The rules on revocable transfers are one reason that property placed in a revocable living trust, for example, is included in the decedent’s estate.

Final Thoughts

Whether a trust is revocable or irrevocable it important. It will impact estate planning as well as tax planning. Make sure you address the

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Estate CPA

Gilbert, AZ