Trusts are legal tools used by financially savvy individuals to protect assets during life and after passing. Trusts can minimize tax consequences and limit asset exposure to lawsuits or debt claims. Importantly, there are a variety of trust types, and it's important that you create the kind of trust that will serve you best. An example of the importance of using different trusts for different purposes can be seen when looking at Marital Trusts and QTIP Trusts.

Traditional Marital Trust Basics

Marital trusts shelter the assets owned by the spouse who passes first. The deceased spouse's assets will be held in trust for the surviving spouse's benefit and will not be subject to estate taxes until the surviving spouse passes. Under a marital trust, the beneficiary-spouse may use trust income and principal at their discretion and even name different beneficiaries.

QTIP Trust Basics

You can probably guess that a QTIP trust has nothing to do with those little cotton swabs you aren't supposed to stick in your ears (but do anyway). The acronym stands for the phrase: Qualified Terminable Interest Property. Unlike a traditional marital trust, the surviving spouse is limited in how they can receive QTIP trust benefits. Although the QTIP trust agreement will provide support for the surviving spouse during their life, they are not in control of the QTIP trust.

Is a Marital Trust or a QTIP Trust Best for You?

Both traditional marital trusts and QTIP trusts are irrevocable, and both are designed to move assets through to heirs while avoiding probate and the estate taxes associated with the first spouse's passing. However, a QTIP trust is often preferred in situations where there are children from prior marriages involved.

The reason for this is that these trusts prevent the surviving spouse from removing their stepchildren as trust beneficiaries. QTIP trusts also help ensure that the surviving spouse cannot unfairly deplete trust assets. While evil stepmothers are mostly just a Hollywood trope, even happily blended families benefit from the peace of mind that QTIP trusts offer.

Trusts aren't just for the extremely wealthy; in fact, they are excellent tools that can help anyone avoid cumbersome probates and tax obligations. If you think a trust may be right for you, you should contact an attorney to help you prepare the type of trust that will best work for you and your family.