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In: Accounting

what is the differnce between AP trust vs Qtip trust?

what is the differnce between AP trust vs Qtip trust?

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Expert Solution

Asset Protection trust

Asset Protection trust is a trust that would help in protecting your assets from being claimed by the creditors. In AP trust there would be three parties, first party who contributes the assets, the second party is the trustee who manages the assets and third is the beneficiary who receives the benefits from the trust. The first party and beneficiary could be the same. In the said trust the properties are insulated from the creditors attack and claim on the assets. Generally, these assets are set up outside USA so that they could advantage during legal suits. All the assets would be managed by the trust and will be protected during the legal claim. These trusts are generally irrevocable. The beneficiaries of the trust do not enjoy legal title but could only enjoy equitable interest in the said assets. A creditor can claim only to the extent of beneficiary interest in the trust and so the said trust acts perfectly to protect the assets in case of law suit.

QTIP trust refers to Qualified Terminable Interest Property.

These trusts are generally applicable in marital life where the assets are handed over to the trust and benefits arising out of the assets are handed over to the spouse of the grantor to ensure that the spouse is taken care for the rest of the life. Unlike AP trust these trusts do not seek to protect the assets from creditors. These assets are intended to generate some income for the spouse of the grantor. Post death of the spouse the assets may be transferred to the beneficiaries of the grantor’s choice. Generally, these trusts are used for providing benefit to the children from another marriage. Not only the trust provides the spouse with source of funds, it will also not result in taxes when the assets are transferred to the children of the spouse on his/her death.


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