Qualified terminable interest property trust

If you're part of a family where there have been divorces, remarriages and stepchildren, you may want to direct your assets to particular relatives through a qualified terminable interest property (QTIP) trust.

Your surviving spouse will receive income from the trust, and the beneficiaries you specify (e.g., your children from a first marriage) will get the principal or remainder after your spouse dies. People typically use QTIP trusts to ensure that a fair portion of their wealth ultimately passes to their own children and not someone else's. This is also utilized if one spouse passes away and the surviving spouse remarries.

Money in a QTIP trust, unlike that in a bypass trust, is treated as part of the surviving spouse's estate and may be subject to estate tax. That's why you should create a bypass trust first, which shelters assets up to the estate-tax exemption, and then if you have assets left over you can put it in a QTIP.