QTIP Trusts: Meaning, Purpose, and How They Work

This post was originally published on May 6th, 2024, and updated on June 2nd, 2025.

A QTIP Trust, short for Qualified Terminable Interest Property Trust, is an irrevocable trust used in estate planning to provide income to a surviving spouse while preserving control over the final distribution of trust assets. It is commonly utilized in second marriages to support a current spouse without excluding children from a previous relationship, and it qualifies for the marital deduction, deferring estate taxes until the death of the surviving spouse.

Purpose of QTIP Trusts

QTIP Trusts serve specific estate planning goals, especially in complex family situations. This section breaks down why they are commonly used.

Supporting the Surviving Spouse

One of the primary purposes of a QTIP Trust is to provide ongoing income to the surviving spouse. The trust ensures that the spouse receives all income generated by the assets for their lifetime, typically on a monthly or quarterly basis. However, the spouse does not have access to the trust principal, preserving those assets for future beneficiaries.

Maintaining Control Over Asset Distribution

The trust allows the grantor to designate final beneficiaries, ensuring that the assets pass to the children, relatives, or charities of their choice after the surviving spouse's death. This structure helps preserve family wealth and honors the grantor’s wishes, particularly in blended family scenarios.

Estate Tax Planning

Because QTIP Trusts qualify for the unlimited marital deduction, estate taxes are not applied at the death of the first spouse. Instead, taxation is postponed until the second spouse passes away. This deferral can facilitate better financial planning and the preservation of family wealth across generations.

QTIP Trusts Rule

Specific IRS requirements and legal standards govern the structure of QTIP Trusts. Understanding these rules helps ensure the trust remains compliant and effective.

IRS Definition and Requirements

For a trust to qualify as a QTIP Trust under IRS regulations, it must meet the following conditions:

All income from the trust must be paid to the surviving spouse annually for life.
The surviving spouse must have a lifetime right to the income from the trust.
No one, including the spouse, can appoint the trust property to another person during the spouse’s lifetime.
The executor of the decedent’s estate must elect QTIP treatment on IRS Form 706.

Tax Implications and Reporting

Assets placed in the QTIP Trust are not taxed upon the first spouse’s death. They become part of the surviving spouse’s estate and are taxed when that spouse dies. The value of the trust must be included in the estate tax return of the surviving spouse and reported accordingly.

QTIP Trusts Eligibility

Not all individuals or situations are appropriate for a QTIP Trust. Eligibility depends on several criteria, both personal and legal.

Legal and Structural Requirements

To establish a QTIP Trust, the trust must be created through a valid legal document, such as a will or trust agreement. It must also comply with relevant state laws. The executor must make an election on the federal estate tax return (Form 706) to designate the trust as QTIP.

Appropriate Situations for Use

QTIP Trusts are suitable for:

Married individuals with children from previous relationships.
High-net-worth couples seeking tax-efficient estate planning.
Situations where the grantor wants to support a spouse without giving them full access to or control over the estate.

Benefits of QTIP Trusts

QTIP Trusts offer several advantages to grantors and their families. This section covers the key benefits.

Protecting Beneficiaries

By restricting the surviving spouse’s access to the principal, QTIP Trusts ensure that the grantor’s intended beneficiaries eventually receive the assets. This setup protects inheritances and can reduce the risk of conflicts among family members. It prevents disinheritance of children from a previous marriage, ensuring their share is preserved while the surviving spouse is still provided for during their lifetime.

Flexible Estate Planning

QTIP Trusts allow the grantor to delay estate taxes while also maintaining control over the eventual distribution of trust assets. This structure helps balance current financial support with long-term legacy planning. The trust’s flexibility also includes the ability to revise or amend the list of remainder beneficiaries if permitted in the original trust document, depending on state law and trust terms.

Avoiding Probate for Assets in Trust

Since assets in a QTIP Trust do not go through probate, they can be distributed more quickly and privately. This avoids court involvement, minimizes delays, and protects the confidentiality of the estate’s contents. This can be particularly advantageous in cases where privacy is highly valued, such as for individuals in the public eye or those involved in contentious family situations.

Deferred Estate Tax Liability

By using the marital deduction, QTIP Trusts defer estate tax liability until the death of the surviving spouse. This delay provides additional time for financial planning and potential estate growth. When the surviving spouse dies, the value of the trust is included in their estate and may be subject to tax; however, the deferral can be strategically beneficial for maintaining liquidity and overall tax efficiency.

Asset Management and Professional Oversight

A QTIP Trust is typically managed by a professional trustee or an experienced fiduciary. This ensures the prudent investment of the trust’s assets and the consistent distribution of income to the surviving spouse. It also reduces the risk of mismanagement or asset dissipation, especially in cases where the surviving spouse lacks financial experience.

Shielding Assets from Creditors and Legal Claims

Depending on state law, assets in a properly structured QTIP Trust may be shielded from the creditors of the surviving spouse. This protection can be crucial in safeguarding family wealth, especially if the surviving spouse faces financial difficulties, lawsuits, or complications from remarriage. Since assets in a QTIP Trust do not go through probate, they can be distributed more quickly and privately. This avoids court involvement, minimizes delays, and protects the confidentiality of the estate’s contents.

Difference Between a QTIP and a Marital Deduction Trust

QTIP Trusts and other marital deduction trusts both qualify for the marital deduction, but they serve different estate planning strategies.

Control of Asset Distribution

QTIP Trusts: The grantor retains full control over the final distribution of trust assets. The surviving spouse receives income only and has no authority to change the ultimate beneficiaries.
Marital Deduction Trusts: The surviving spouse typically has more discretion, including access to principal, and may have the authority to determine how assets are distributed after their death.

Estate Tax Timing

QTIP Trusts: Estate taxes are deferred until the surviving spouse passes away, at which point the trust assets are included in their estate for tax purposes.
Marital Deduction Trusts: Estate taxes are also deferred, but the flexibility given to the spouse may affect how and when tax liability is calculated.

Ideal Use Cases

QTIP Trusts: Best for individuals in second marriages who want to provide for a spouse while preserving wealth for children from a previous relationship.
Marital Deduction Trusts: Suitable for couples with shared heirs and aligned estate planning goals, where the surviving spouse is trusted with complete control. QTIP Trusts are ideal when the grantor wishes to protect children from a previous relationship or limit a spouse’s control. General marital trusts are better suited for couples with mutual beneficiaries and aligned long-term goals.

How QTIP Trusts Work in Practice

This section walks through a real-world scenario to illustrate how QTIP Trusts function.

Example Setup

John, a widower with two children, marries Sarah. To ensure that Sarah is supported without compromising his children’s inheritance, John creates a QTIP Trust. He transfers $2 million in assets to the trust before his death. Sarah receives all income generated by the trust for the remainder of her life. When Sarah dies, the remaining trust principal passes to John’s children. This arrangement ensures Sarah's financial well-being while honoring John's intention to leave the estate to his children.

Trustee Responsibilities

The trustee is responsible for administering the trust per its terms. Duties include making regular income distributions to the surviving spouse, managing and investing trust assets, keeping accurate records, and filing necessary tax documents. Upon the surviving spouse’s death, the trustee ensures the remaining assets are distributed to the designated remainder beneficiaries.