A QTIP trust — short for Qualified Terminable Interest Property trust — is an estate planning tool that pays your surviving spouse income for life while you, not your spouse, decide who inherits the remaining assets after they die. It qualifies for the unlimited marital deduction, so no federal estate tax is owed on the trust assets when you die, but the remaining value is included in your spouse’s estate when they die. For 2026, with the federal estate tax exemption at $15 million per person, it remains a core tool for couples whose combined wealth may exceed that threshold and for anyone in a blended family who wants to protect an inheritance for children from a prior relationship.1Internal Revenue Service. What’s New – Estate and Gift Tax
How the Trust Splits Income From Inheritance
The grantor (the person creating the trust) transfers assets into the trust, names their spouse as the lifetime income beneficiary, and designates remainder beneficiaries who inherit whatever is left when the spouse eventually dies. During the spouse’s lifetime, the trustee manages the assets and pays out income. The spouse receives every dollar of net income the trust generates. What the spouse cannot do is redirect the underlying assets to someone else, sell the trust property for their own purposes, or change who ultimately inherits.
That structure solves a problem outright bequests cannot. A surviving spouse who inherits directly can leave everything to their own children, remarry and start over, or spend down the estate. A QTIP trust ensures the spouse is financially comfortable while locking the underlying assets on the path you chose. In blended families this is often the decisive feature. In larger estates it also allows professional management of assets the spouse may not want to handle alone.
Who Can Use a QTIP Trust
Federal law requires a valid marriage between the grantor and the beneficiary spouse at the time of the grantor’s death. The statute imposes three conditions on the trust property: it must pass from the decedent, the surviving spouse must have a qualifying income interest for life, and the executor must elect QTIP treatment on the estate tax return.2Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse Miss any one and the trust loses its favorable tax treatment.
If the surviving spouse is not a United States citizen, the standard marital deduction is disallowed. To preserve the deduction, the estate must instead use a Qualified Domestic Trust (QDOT), which requires at least one trustee to be a U.S. citizen or domestic corporation and collects estate tax on distributions of principal from the trust.3Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse – Section: (d) The point is to keep the assets reachable by the federal tax system.
What the Surviving Spouse Is Entitled To
The surviving spouse must receive all income generated by the trust property, paid out at least annually. This is the non-negotiable core of a QTIP. Dividends from stocks, net rent from real estate, interest from bonds — it all goes to the spouse, and the trust document cannot restrict or reduce those payments during the spouse’s lifetime. No one, not even the spouse, can redirect trust assets to a third party while the spouse is alive. The only permitted power over the assets is one that takes effect after the spouse’s death, which is how the remainder beneficiaries eventually receive their share.4Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse – Section: (b)(7)(B)(ii)(II)
A wrinkle shows up when the trust holds assets that produce no income, such as undeveloped land or a personal residence. If local law permits, the surviving spouse can compel the trustee either to make the property productive or to sell it and reinvest the proceeds in income-producing assets within a reasonable time after the grantor’s death.5eCFR. 26 CFR 20.2056(b)-7 – Election With Respect to Life Estate for Surviving Spouse Grantors who specifically want to keep a family home or similar asset in the trust need to plan around this, sometimes by providing a separate income source that satisfies the requirement.
Reaching Principal Under HEMS
Income alone may not be enough during a health crisis or a stretch of poor investment returns. Many QTIP trusts let the trustee distribute principal (the underlying assets, not just what they produce) for the spouse’s benefit, most commonly under an ascertainable standard: health, education, maintenance, and support, known as HEMS. A distribution power limited to this standard is not treated as a general power of appointment, so it does not create adverse tax consequences.6Office of the Law Revision Counsel. 26 USC 2041 – Powers of Appointment
HEMS is deliberately narrow. It covers uninsured medical costs, education, and the day-to-day expenses of the spouse’s established standard of living. It does not cover gifts to the spouse’s relatives, luxury purchases beyond the accustomed lifestyle, or speculative investments. The trustee has discretion inside those boundaries, and that discretion is where most QTIP disputes begin.
How the Tax Works
QTIP trust assets qualify for the unlimited marital deduction. No federal estate tax is owed on those assets when the first spouse dies, because the trust is treated for deduction purposes as if the property had passed directly to the surviving spouse.7Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse – Section: (b)(7)(A) The full estate stays intact, working for the family, rather than shrinking to pay tax at the first death.
The trade-off arrives at the second death. When the surviving spouse dies, the full value of whatever remains in the QTIP trust is included in the spouse’s gross estate as though the spouse had owned it outright.8Office of the Law Revision Counsel. 26 USC 2044 – Certain Property for Which Marital Deduction Was Previously Allowed If the combined value of the spouse’s own assets plus the QTIP trust exceeds the exemption ($15 million per person in 2026), the excess is taxed at that point.1Internal Revenue Service. What’s New – Estate and Gift Tax The estate tax bill comes out of the trust assets before the remainder beneficiaries receive their inheritance, unless the trust document or the spouse’s will directs otherwise.
Deferring tax until the second death is not always the cheapest route. In a large estate it can be better to use some of the first spouse’s exemption up front instead of stacking everything into the survivor’s estate. That’s what the partial election is for.
The Election on Form 706
A QTIP trust does not receive its tax-favored status automatically. The executor of the deceased spouse’s estate must affirmatively elect QTIP treatment on the federal estate tax return, Form 706, reported on Schedule M.9Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse – Section: (b)(7)(B)(v)10Internal Revenue Service. Schedule M (Form 706)
Two features of the election catch people off guard. It is irrevocable once the return is filed, even if circumstances change dramatically. And Form 706 is due within nine months of the decedent’s death, with an automatic six-month extension available by filing Form 4768.11Internal Revenue Service. Instructions for Form 706 Miss the deadline and the marital deduction can be lost entirely, triggering the exact tax bill the trust was designed to avoid.
Partial QTIP Elections
The executor is not required to elect QTIP treatment for the whole trust. A partial election lets the executor designate only a portion for the marital deduction and use the deceased spouse’s own exemption on the rest. The portion without QTIP treatment passes outside the marital deduction, consumes some or all of the first spouse’s $15 million exemption, and is excluded from the surviving spouse’s estate entirely. The portion with QTIP treatment gets the deduction and defers tax until the second death. This flexibility is one of the strongest arguments for a QTIP over simpler alternatives: the final tax strategy doesn’t have to be locked in until after the first spouse dies, when the executor can see the actual numbers.
The Reverse QTIP Election for Grandchildren
If the remainder beneficiaries are grandchildren or other skip-generation heirs, the generation-skipping transfer (GST) tax comes into play. The GST exemption for 2026 is $15 million per person.12Congress.gov. The Generation-Skipping Transfer Tax (GSTT) Without planning there’s a problem: because the trust is later pulled into the surviving spouse’s estate under Section 2044, the surviving spouse becomes the “transferor” for GST purposes, and the deceased spouse’s GST exemption goes unused.
The reverse QTIP election, under Section 2652(a)(3), fixes this. The estate can elect to treat the property as if no QTIP election had been made — but only for GST tax purposes.13Office of the Law Revision Counsel. 26 USC 2652 – Other Definitions The deceased spouse stays the transferor, and the executor can allocate that spouse’s GST exemption to the trust, effectively letting both spouses’ exemptions shield a combined $30 million from generation-skipping tax. Like the standard election, it is irrevocable and must cover all property to which the QTIP election applies.14eCFR. 26 CFR 26.2652-2 – Special Election for Qualified Terminable Interest Property
QTIP Trust or Just Portability?
Since 2011, a surviving spouse can inherit any unused portion of the deceased spouse’s exemption through a portability election, called the “deceased spousal unused exclusion” (DSUE).15Internal Revenue Service. Instructions for Form 706 That effectively doubles the exemption at the survivor’s death with no trust required. So why bother with a QTIP?
Portability is simpler and cheaper, and it works well when the only goal is combining the two exemptions. A QTIP does things portability cannot:
- Assets in a QTIP trust are generally shielded from the surviving spouse’s creditors; assets inherited outright are not.
- The QTIP locks in the remainder beneficiaries. Portability gives the surviving spouse complete freedom over the inherited assets, which defeats the goal in most blended families.
- Portability does not apply to the GST exemption. If grandchildren are eventual beneficiaries, a QTIP with a reverse election is the only way to use both spouses’ GST exemptions.
- Assets that grow inside a QTIP use the first spouse’s exemption based on the value at the first death. With portability, later growth happens inside the survivor’s estate and may push it past the exemption.
Many estate plans use both — portability as a safety net, a QTIP for the assets that need control, protection, or GST planning.
Built-In Conflicts to Plan Around
Every QTIP trust carries a structural tension. The surviving spouse wants income and financial security. The remainder beneficiaries want the principal preserved for their eventual inheritance. Aggressive investing generates more income but risks principal. Conservative investing protects principal but can leave the spouse short. The most common disputes involve principal invasions the remainder beneficiaries consider too generous (or the spouse considers too stingy), investment strategies that favor one side, and trustees who fail to give the remainder beneficiaries the accountings and information they’re entitled to.
Any beneficiary can petition a court to remove a trustee who breaches fiduciary duty and to recover damages. Naming an independent professional trustee rather than a family member reduces the risk of these fights, though professional trustees typically charge annual fees between 0.75% and 2% of the trust’s value.
Setting Up and Funding the Trust
An estate planning attorney drafts the document, typically at a cost between $1,500 and $5,000 depending on complexity. The document identifies the grantor, the surviving spouse (with full legal name and tax identification), the trustee and successor trustees, and the remainder beneficiaries in enough detail to remove ambiguity. Naming at least two successor trustees keeps the trust functioning if the primary trustee can’t serve.
The grantor needs a full inventory of assets intended for the trust: investment accounts, real estate, business interests, and any retirement accounts, which carry their own distribution rules and require separate attention. The trust is signed before a notary and witnesses under the requirements of the relevant state.
After the grantor’s death the executor funds the trust by re-titling assets: new deeds for real property, updated ownership records at brokerage firms and banks, and account transfers into the trust’s name. The tax-favored status is confirmed only after the executor files Form 706, makes the QTIP election on Schedule M, and the IRS processes the return.11Internal Revenue Service. Instructions for Form 706 Because the election is irrevocable and the filing window closes nine months from the date of death (with a possible six-month extension), the executor should be working with a tax professional well before that clock runs out.