Although estate planning can be complex, one of its primary goals is to help you make sure that your loved ones are taken care of into the future. That’s often why people choose to create trusts—legal structures that let you transfer assets to your beneficiaries while also reducing your estate tax liability. Not surprisingly, spouses are frequent beneficiaries of a trust.
While there are several different types of spousal trusts to consider, a qualified terminable interest property (QTIP) trust may be right for you if you’d like to arrange for the financial well-being of a surviving spouse while maintaining control over how your assets are ultimately distributed. Here’s what you need to know about QTIP trusts and how they might fit into your estate plan.
What Is a QTIP Trust?
A qualified terminable interest property trust, or QTIP trust, is a specialized estate planning tool designed to provide for a surviving spouse while also preserving assets for other beneficiaries. In essence, a QTIP trust gives your spouse a lifetime interest in the trust’s assets. Upon their passing, however, the remaining assets will be distributed according to your wishes.
How Does a QTIP Trust Work?
QTIP trusts are generally irrevocable testamentary trusts that are governed by the grantor’s will (the grantor is the person who sets up the trust). They function by holding and managing assets—such as real estate, investments, and other properties—for the benefit of a surviving spouse.
Under the terms of the trust, the income generated by the trust’s assets (such as dividends and interest) will be paid to your spouse, at least annually, until their death. The principal, however, will only be distributed according to your wishes. Some grantors choose to preserve the full amount of the principal for future heirs, such as their children or grandchildren. Others may choose to give their surviving spouse access to some of the principal funds while limiting withdrawal amounts and/or placing restrictions on how the funds can be used. Ultimately, the choice is yours.
What Is the Purpose of a QTIP Trust?
A QTIP trust can serve multiple purposes, particularly if you wish to provide for the financial well-being of your surviving spouse while also retaining control over the ultimate distribution of your estate. They are often used in situations involving blended families, second marriages, or other complex family dynamics.
Another common reason to use a QTIP trust is to take advantage of the marital deduction, which allows you to pass assets to your surviving spouse without incurring federal estate taxes. By using a QTIP trust, your estate can defer estate taxes on the trust assets until your surviving spouse passes away, allowing those funds to continue growing in the trust.
When Should a QTIP Trust Be Used?
QTIP Trusts are especially useful in situations where you want to:
- Provide for a surviving spouse while preserving assets for other beneficiaries, such as your children from a previous marriage
- Prevent your surviving spouse from leaving your assets to beneficiaries you didn’t choose, such as a new spouse or the children from a remarriage
- Place restrictions on the amount of principal your surviving spouse can access and/or the ways in which the principal funds can be used (e.g., to build in protections against potential scams, excessive spending, or incapacity)
- Plan for the proper management and preservation of significant wealth while helping to minimize estate taxes
Contact a Financial Advisor About a Q-TIP Trust Today
What’s the Difference Between a QTIP Trust and a Marital Trust?
In broad terms, a marital trust—also called an A Trust—is an account set up to benefit your spouse. Like a QTIP trust, a marital trust is irrevocable, meaning it cannot be altered after you set them up. Unlike a QTIP trust, however, a marital trust allows your spouse to receive both the income and the principal from the trust account.
Additionally, with a marital trust, there’s no way to be 100% certain that the beneficiaries of your choice will receive trust funds in the future. Your spouse is free to name anyone they want as beneficiary after their passing—even their new spouse if they decide to remarry.
What Are the Benefits of a QTIP Trust?
In addition to providing for your spouse after you pass away, QTIP trusts offer several advantages:
- Asset preservation. By safeguarding the trust’s principal, a QTIP trust allows you to preserve assets for future generations.
- Control over distributions. You get to decide how the remainder of your assets are ultimately distributed after your spouse passes.
- Flexibility. QTIP trusts can be tailored to your specific family dynamics. For instance, you can decide that the trust’s principal can only be accessed for health care expenses or after an independent trustee approves a withdrawal request.
- Tax deferral. Like marital trusts, QTIP trusts allow you to take advantage of the unlimited marital deduction. Typically, at the time of your passing, if your estate’s assets exceed the individual estate tax exemption ($13.61 million in 2024 and $13.99 million in 2025), your estate would be taxed. By establishing a QTIP trust, however, you can defer those taxes until after your spouse passes.
- Tax savings. In some cases, a QTIP trust can help with generation-skipping transfer tax (GSTT) planning, where assets pass directly to grandchildren or other distant beneficiaries, potentially reducing the overall tax burden across generations. This flexibility makes QTIP trusts valuable tools for tax-efficient estate planning.
Will a QTIP Trust Provide Enough for the Surviving Spouse?
The amount your surviving spouse receives from a QTIP trust will depend on the income the trust generates. This makes it important to speak with a financial advisor when setting up the trust to make sure it’s properly funded to meet your surviving spouse’s financial needs and goals. In general, QTIP trusts are designed to provide your spouse with a stable income stream over their lifetime, helping to safeguard their financial well-being.
Are There Requirements to Set Up a QTIP Trust?
To establish a QTIP trust, you will need to meet certain requirements:
- The trust must be established as part of a valid will, and it must be irrevocable.
- The trust’s assets must generate income.
- The surviving spouse must be a U.S. citizen.
- The surviving spouse must be entitled to receive all the income from the trust for their lifetime.
- A trustee must be appointed to manage the trust’s assets.
- The trust must include provisions for how assets should be distributed to the remaining beneficiaries upon the surviving spouse’s passing.
Who Can Act as Trustee of a QTIP Trust?
The trustee of a QTIP Trust will typically be a trusted individual or corporate entity, such as a family member, financial institution, or professional trustee. If you decide to appoint an individual, be sure they have financial knowledge and understand how to administer a trust, as the trustee will be responsible not only for managing the trust’s assets but also for providing your spouse with income distributions and overseeing the eventual distribution to any other remaining beneficiaries.
Is a QTIP Trust Right for Me?
Whether you need a QTIP trust depends on your specific circumstances and estate planning goals. If you’re in a second or third marriage, want to provide for your current spouse while arranging for your assets to ultimately go to the heirs of your choice, or are looking for estate tax benefits, a QTIP trust may be the right choice.
Bear in mind, however, that estate planning is difficult on its own and can be even more complex when you introduce things like trusts. The truth is, every situation is different, so something that might be right for your friends or other family members may not be right for your circumstances.
That’s why it’s important to include a financial advisor while crafting your estate plan. By being open and honest with them about your financial situation, they can help steer you down the path that’s right for you.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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