Qualified Terminable Interest Property (QTIP) Trust

Key takeaways

A QTIP trust provides lifetime income to a surviving spouse and preserves the remainder for beneficiaries named by the original grantor.
It is typically irrevocable and frequently used by people with children from multiple marriages.
Assets in a QTIP qualify for the federal marital deduction and are taxed only after the surviving spouse’s death.

What is a QTIP trust?

A QTIP trust (Qualified Terminable Interest Property trust) is an estate-planning vehicle that pays income to a surviving spouse for life while allowing the grantor to control who receives the trust principal after the spouse’s death. It protects assets for designated beneficiaries (for example, children from a prior marriage) while ensuring the surviving spouse has ongoing financial support.

How it works

The grantor funds an irrevocable trust and designates a spouse as the income beneficiary.
The trust must pay all income to the surviving spouse (and may allow limited principal distributions if the trust document permits).
When the surviving spouse dies, the remaining trust principal is distributed to the remainder beneficiaries specified by the grantor.
The surviving spouse does not receive authority to reassign or appoint the principal (no power of appointment), preventing the assets from being diverted to a new spouse or other parties.

Tax treatment and reporting

Income and assets in a QTIP qualify for the federal marital deduction at the first spouse’s death, so estate taxes are deferred until the surviving spouse dies.
The estate tax liability on trust property generally transfers to the surviving spouse’s estate and is assessed at that later date.
QTIP elections and reporting are made on federal estate tax forms (see IRS instructions for Form 706).

Trustees and payments

At least one trustee must be named to manage trust assets; multiple trustees are allowed.
Potential trustees include the surviving spouse, a financial institution, an attorney, or a trusted family member/friend.
Payments to the surviving spouse typically come from the trust’s income (e.g., dividends, interest). Principal distributions are allowed only if the trust terms permit. Payments cease at the spouse’s death, at which point the remainder beneficiaries receive the principal.

QTIP trust vs. marital trust

QTIP trust: Grantor retains control over who receives the remainder after the surviving spouse’s death; the surviving spouse receives income but cannot direct final distributions.
Marital trust (general marital deduction trust): Surviving spouse often has broader control over the trust and may be able to influence or receive principal; the spouse’s preferences can determine final disposition.
Choose a QTIP when you want to guarantee the surviving spouse’s support but control the ultimate distribution of assets.

Benefits

Preserves grantor control over final beneficiaries (useful with blended families).
Provides lifetime income to a surviving spouse.
Defers estate taxation until after the surviving spouse’s death.
Can protect trust assets from being redirected by the surviving spouse.

Requirements and limitations

The trust must pay all income to the spouse beneficiary during their lifetime.
No remainder beneficiaries may receive trust principal until after the spouse’s death.
Because it is typically irrevocable, changes after funding are limited.
QTIPs are not necessary if you do not care how assets are distributed after the surviving spouse’s death.

When to consider a QTIP

You want to provide for a surviving spouse while ensuring assets eventually go to children from a previous marriage or other chosen beneficiaries.
You wish to defer estate taxes until the death of the surviving spouse.
You want to prevent a surviving spouse from redirecting trust principal to new beneficiaries.

Sources

Internal Revenue Service — Instructions for Form 706
Cornell Law School, Legal Information Institute — Qualified Terminable Interest Property (QTIP) trust
Gunderson Law Group — An Essential Guide to QTIP Trusts in Estate Planning