To set up a QTIP trust, you draft a trust instrument that satisfies two mandatory requirements under 26 U.S.C. § 2056(b)(7), fund it with assets, and then, after the grantor’s death, the executor elects qualified terminable interest property treatment on Schedule M of IRS Form 706. There is no government form for the trust itself. The trust is a private document prepared to your specifications; the tax election is what actually secures the federal estate tax marital deduction.1Office of the Law Revision Counsel. 26 USC 2056 – Bequests, etc., to Surviving Spouse
The Two Requirements the Trust Instrument Must Meet
Federal tax law imposes two non-negotiable conditions on a QTIP trust. Miss either one and the property does not qualify for the marital deduction, no matter how carefully the rest of the document is drafted.
First, the trust must require that all income generated by the trust property go to the surviving spouse, distributed no less often than annually. The spouse can also be given the enforceable right to demand that income each year. “Income” here means trust accounting income — dividends, interest, rents — and not capital gains retained inside the trust.1Office of the Law Revision Counsel. 26 USC 2056 – Bequests, etc., to Surviving Spouse A clause letting the trustee accumulate income rather than pay it out disqualifies the trust. The spouse’s right must be mandatory.
Second, no one — trustee, children, third party — can have the power to appoint trust property to any person other than the surviving spouse during the spouse’s lifetime. Powers that take effect only after the spouse dies are permitted. A “hardship” or “emergency” provision allowing the trustee to hand principal to the grantor’s children while the spouse is still living destroys QTIP status entirely.1Office of the Law Revision Counsel. 26 USC 2056 – Bequests, etc., to Surviving Spouse
Distributions of principal to the spouse are fine. The IRS has accepted trusts that authorize the trustee to invade principal for the spouse’s health, maintenance, and support when income is insufficient.2Internal Revenue Service. IRS Private Letter Ruling 202118008 The line is simple: to the spouse, yes; to anyone else during the spouse’s life, no.
Other Provisions the Trust Needs
Beyond the two statutory requirements, a workable trust instrument needs several practical components. Name the remaindermen who receive the principal after the surviving spouse dies. These are typically children from a prior marriage, which is the most common reason people use a QTIP in the first place. Name a trustee to manage investments and handle distributions. Include the grantor’s full legal name and Social Security number, the surviving spouse’s identifying information, and a detailed description of the property going into the trust.
Right to Make Property Productive
If the trust will hold assets that don’t produce regular income — vacant land, growth stocks that pay no dividends, collectibles — the surviving spouse must have the right to compel the trustee to make that property income-producing or convert it into something that is. This comes from Treasury regulations and protects the mandatory income interest from being hollowed out by a portfolio full of non-yielding assets.3eCFR. 26 CFR 20.2056(b)-5 – Marital Deduction; Life Estate With Power of Appointment Write this right explicitly into the instrument rather than assuming state trust law will imply it.
Language for IRAs and Retirement Accounts
Naming a QTIP trust as the beneficiary of an IRA adds a wrinkle, because IRA earnings are not automatically distributed the way bond interest or rental income is. Under Revenue Ruling 2006-26, the surviving spouse only qualifies for the required income interest if the trust gives the spouse the power to compel the trustee to withdraw the income earned inside the IRA each year and pay it out.4Internal Revenue Service. Revenue Ruling 2006-26 When the spouse exercises that power, the trustee must withdraw whichever is greater, the income earned inside the IRA or the required minimum distribution, and pay at least the income portion to the spouse. Without that specific language in the trust document, the IRA won’t qualify for QTIP treatment even if everything else is drafted correctly.
Signing and Funding the Trust
An inter vivos QTIP trust, one the grantor creates during life, is signed by the grantor. Most states require notarization; a few, including California, do not. A handful — Florida and Georgia among them — also require two witnesses at signing. Execute the trust in compliance with the law of the state where the grantor is domiciled, and if it will hold real property in another state, check that state’s rules too, since the deed transferring the property will need to be recorded there.
A testamentary QTIP trust is created through the grantor’s will and takes effect at death. It is executed with the same formalities as the will itself, which means witnesses everywhere and typically notarization.
Once the trust is executed, actually move the assets in. Retitle real estate by recording a new deed in the trust’s name. Change beneficiary designations or retitle financial accounts. A trust that exists on paper but holds no assets accomplishes nothing.
Making the QTIP Election on Form 706
The trust document alone does not deliver the marital deduction. After the grantor dies, the executor must affirmatively elect QTIP treatment on the federal estate tax return. This step is mechanical but unforgiving.
The election is made on Schedule M of Form 706 by listing the qualified terminable interest property on line 4 and entering its value. Simply listing the property with a value creates a presumption that the election has been made.5Internal Revenue Service. Instructions for Form 706 The election is irrevocable once the filing deadline (including extensions) passes.6eCFR. 26 CFR 20.2056(b)-7 – Election With Respect to Life Estate for Surviving Spouse The reverse rule also catches executors: because listing property on Schedule M is treated as an election, an executor who lists QTIP property but does not want to elect must specifically identify the property being excluded. Otherwise the IRS presumes the election was made for the entire interest.
Partial Elections
The executor does not have to elect QTIP treatment for the whole trust. A partial election, covering a fractional or percentage share, is one of the most useful planning tools available.7Internal Revenue Service. Instructions for Form 706 – Schedule M Because the election happens after death, the executor already knows the estate’s actual value, how much unified credit remains, and the surviving spouse’s financial situation. A partial election lets the executor use as much of the first spouse’s exemption as possible on assets that stay outside the marital deduction, while deferring tax on the rest through the QTIP.
Any partial election must be stated as a fraction or percentage of the property, so the elected portion shares proportionally in gains and losses. You can’t cherry-pick specific assets within the trust.
What Goes on Schedule M
Every asset in the QTIP trust gets its own line item. Describe each property interest in detail: account numbers for brokerage and bank holdings, legal descriptions for real estate, CUSIP numbers for securities. The value entered must be fair market value as of the date of death (or the alternate valuation date, if elected), and it must match the figures on the rest of Form 706’s asset schedules.7Internal Revenue Service. Instructions for Form 706 – Schedule M Identify the trust by the formal name used in the instrument, and include the surviving spouse’s Social Security number and the estate’s taxpayer identification number.
Financial holdings worth more than $3,000 individually or as a group of similar items need a sworn appraisal from a qualified appraiser attached to the return. Real property almost always requires an appraisal. Back up every value with documentation, because the IRS compares Schedule M entries against the inventory reported on Schedules A through I.
Filing Deadline and Where to Send It
Form 706 is due nine months after the date of death.8Internal Revenue Service. Instructions for Form 706 If more time is needed, Form 4768 filed before that deadline grants an automatic six-month extension.9eCFR. 26 CFR 20.6081-1 – Extension of Time for Filing the Return The extension covers filing only; estimated tax is still due at nine months, and Form 4768 must include an estimate of the estate and generation-skipping transfer tax liabilities.
Mail the completed return to:
Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 6499910Internal Revenue Service. Filing Estate and Gift Tax Returns
The package should include a certified copy of the decedent’s will (if one exists), a copy of the trust instrument, the death certificate, Form 712 for any life insurance policies, and appraisals for high-value items.8Internal Revenue Service. Instructions for Form 706 Send it by certified mail or a trackable service, and keep a complete copy of everything filed.
What Happens at the Surviving Spouse’s Death
The marital deduction is a deferral, not an exemption. When the surviving spouse dies, every asset remaining in the QTIP trust is pulled into the spouse’s gross estate and taxed then.11Office of the Law Revision Counsel. 26 USC 2044 – Certain Property for Which Marital Deduction Was Previously Allowed The property is treated as though it passed from the surviving spouse, even though the spouse never had power to redirect it. The top federal estate tax rate is 40 percent on amounts above $1 million in taxable transfers.12Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
That creates a fairness problem: the remaindermen inherit the principal, but the surviving spouse’s estate pays the tax on it. Section 2207A gives the surviving spouse’s estate the right to recover the additional estate tax attributable to the QTIP property from the people who actually receive it.13Office of the Law Revision Counsel. 26 USC 2207A – Right of Recovery in the Case of Certain Marital Deduction Property The spouse can waive that recovery right in a will or revocable trust, and sometimes waiver is deliberate, as when the spouse wants the children to receive the full principal. An accidental waiver, or failure to exercise the right before the limitations period runs, can produce a taxable gift.
For 2026, the basic exclusion amount is $15,000,000.14Internal Revenue Service. Estate Tax The QTIP election becomes strategically important when the combined assets of both spouses could push the surviving spouse’s estate above the exemption. A partial election on the first spouse’s return lets the executor use part of that first exemption on assets outside the marital deduction while deferring tax on the QTIP portion until the second death.
Drafting and Filing Mistakes That Void the Election
The most frequent drafting error is giving someone other than the surviving spouse access to trust property during the spouse’s lifetime. A clause allowing distributions to the grantor’s children “in an emergency” while the spouse is alive kills the election.
The second common failure involves income. Discretionary accumulation of income, or a portfolio full of non-income-producing assets without the spouse’s right to demand conversion, undercuts the income requirement. The right to all income, at least annually, must be mandatory.
On the tax side, the biggest risk is the deadline. If the executor files Form 706 late without an extension and omits the QTIP election, there is generally no way to go back and make it. The marital deduction is lost, and the full value of the trust is taxed in the first estate. On a large estate, that single miss can cost millions.