How Does a QTIP Trust Work?

Establishing a trust as part of your estate plan can help you both safeguard your assets and preserve your financial legacy. If you’re married, you might consider a Qualified Terminable Interest Property (QTIP) trust. This specialized trust allows you to provide for your surviving spouse while maintaining control over how the assets are distributed after their passing. A QTIP trust can offer peace of mind, ensuring your spouse is financially secure, while also protecting your long-term estate planning goals. Since estate planning can be complex, consulting with a financial advisor can help you make the best decisions for your individual situation.

What Is a Qualified Terminable Interest Property (QTIP) Trust?

A QTIP trust enables one spouse to provide income for the other while preserving control over the ultimate distribution of assets. This type of trust is commonly used to ensure that assets pass to designated beneficiaries, such as children, after the surviving spouse’s death.

While similar to a marital trust, a QTIP trust has distinct differences. Both types of trusts hold assets belonging to a deceased spouse, but QTIP trusts impose specific restrictions. When the grantor of a QTIP trust passes away, their assets are transferred into the trust, generating income for the surviving spouse.

However, the principal assets remain protected and are distributed to other beneficiaries upon the surviving spouse’s death. The grantor has the flexibility to designate these beneficiaries, ensuring that assets are passed according to their wishes. In contrast, a marital trust grants the surviving spouse greater control over asset distribution, making it a less restrictive option than a QTIP trust.

How a QTIP Trust Works

A QTIP trust is a type of irrevocable trust. That means once you transfer assets to the trust, that transfer typically can’t be reversed. This kind of trust is useful for people who are remarried and have children from a previous marriage. A QTIP trust can allow the grantor to provide financially for both their current spouse as well as children they had with a previous spouse.

When you create a QTIP trust, you can transfer assets at that time or arrange for them to be transferred to the trust once you pass away. Typically, this is done through the creation of a separate will.

You’ll need to choose a trustee to oversee the trust. This person is bound by a fiduciary duty to manage the trust according to your wishes. You may also wish to name one or more successor trustees in case the original trustee is unable to complete their duties.

The next step is choosing your beneficiaries. In a QTIP trust, your spouse is considered to be a lifetime beneficiary, as they’re able to draw on trust income during their lifetime. The people who receive the assets held in the trust once the surviving spouse passes away are called remainder beneficiaries. So again, the remainder beneficiaries may be children from a previous relationship, or anyone else you’d like to inherit your assets.

Surviving Spouses and QTIP Trusts

The surviving spouse primarily benefits from a QTIP trust because of the income they’re allowed to receive from it. While they would have limited or even no access to the underlying assets in the trust, they could still benefit from any income those assets generate. The kinds of income-producing assets that can be held inside a QTIP trust may include investment properties and taxable investment accounts. This income can be a supplement to Social Security benefits, pensions, annuities and distributions from tax-advantaged retirement plans.

Again, the spouse would not inherit the assets themselves. So if you transfer a rental property into the trust, for example, the spouse could collect the rental income it generates. But the property itself would go to whoever you name as a remainder beneficiary to the trust.

Tax Treatment of QTIP Trusts

In terms of the tax benefits, a QTIP trust allows the assets to qualify for the marital deduction. This means that any assets in the trust are excluded from your estate for tax purposes once you pass away. When the surviving spouse dies, the QTIP trust is dissolved and the assets are passed on to the remainder beneficiaries. At this point, assets held in the trust would be included in the surviving spouse’s estate for tax purposes.

This is one of the most appealing features of a QTIP trust, in that you can use them to manage estate taxes for a surviving spouse. Any tax obligation owing when the surviving spouse passes away would be passed on to the remainder beneficiaries. For 2025, the estate tax exemption is set at $13.99 million for individuals and $27.98 million for married couples.

QTIP Trust vs. Marital Trust

QTIP trusts and marital trusts can both be used in an estate plan to manage tax liability while providing financially for a surviving spouse. The main differences between the two lie in how much control a surviving spouse has over trust assets and what happens to the trust assets when they pass away.

A QTIP trust could be the preferred option if your current marriage is not your first and you have children from a previous relationship. Creating this type of trust means your current spouse won’t be left in the lurch financially if something happens to you. And it also means you can ensure that your children from the previous relationship are able to inherit your assets.

You may also consider a QTIP trust if you’re worried about what your current spouse might do with your assets if left in control of them. If they have spendthrift habits or large amounts of debt, for instance, setting up this type of trust can ensure that they aren’t able to use your assets in a way that goes against your wishes after you’re gone.

Talking to a financial advisor or estate planning attorney about the specifics of QTIP trusts and marital trusts can help you decide which one may be more appropriate. If you decide to move ahead with establishing a QTIP trust, it may also be wise to have a family discussion about it with your spouse and the people you plan to name as remainder beneficiaries. This can help ensure that everyone is one the same page about what will happen to your assets after you’re gone.

Bottom Line

A QTIP trust can be a valuable estate planning tool for married individuals with children from a previous marriage. This type of trust provides financial security for your spouse after your passing, while preserving assets and offering potential tax benefits. Evaluating your financial situation and current estate plan can help determine whether a QTIP trust aligns with your goals.

Tips for Estate Planning

Consider talking to a financial advisor about the benefits of creating a QTIP trust and what gaps in your estate plan may need to be filled. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Knowing what you’ve got coming from Social Security is a key factor as you pursue estate planning. Use a free Social Security calculator to get a good estimate of how much the federal government will be giving you each month.
Trusts are just one component to consider when creating a well-rounded estate plan. A last will and testament, living will and life insurance are all things you may benefit from having as well. A will, for instance, can be used to name guardians for minor children while distributing assets not included in a QTIP trust. A living will can ensure your wishes regarding end-of-life care are carried out while life insurance can replace lost income for your spouse and children. You may want to add creating a will or living will and comparing life insurance plans online to your financial to-do list if you’re lacking those things.