Planning your estate can be tricky business. In addition to being somewhat depressing as you plan out how your assets are to be distributed when you die, the planning of your estate can be overwhelming, worrisome, and tedious. Knowing the ins and outs of estate planning will help you when set down to figure out how to best plan your assets. Two such assets are Bypass Trusts and QTIP Trusts. Below are definitions of these trusts and how they work for you.

Bypass Trusts

The first thing you need to know is what a bypass trust is. A bypass trust, according to Dianne Reis, who is a Texas Board Certified Estate Planning and Probate Specialist, is a “long-term planning device.” The money left to beneficiaries in a bypass trust is not taxed by estate taxes.

Reis points out that this is good for spouses who plan estates together. Using a bypass trust, the property will only be taxed once between the two of them. A bypass trust needs to be written correctly with exact legal language, thus a lawyer or financial advisor would be a good idea.

QTIP Trust

A QTIP trust, according to the First American Bank, stands for a Qualified Terminable Interest Property. According to Citi Bank, a QTIP is often coupled with a bypass trust. Citi Bank says that this is called an “A-B Trust Arrangement.” In this scenario, an individual can give over $675,000 to their beneficiaries but they will not have to pay taxes on it until your spouse passes away.

With these plans, you would leave the money to your spouse who would then leave it to your beneficiaries, but the money if left to the kids would have to be taxed immediately. So, in a QTIP trust, one draw back is that your children will not see it until your husband, wife, or partner dies.

Conclusion

Planning your estate for the protection of your children is one of the most important things that you can do when setting up trusts. Being knowledgeable of different types of assets and trust is imperative for this process.