Let us assume that the husband passes away first since that happens 7 out of 8 times in America. This trust usually pays income to the surviving spouse and can, in the event of an emergency or medical need, distribute principal to the surviving spouse. When the surviving spouse passes away, this bypass trust will then be distributed to beneficiaries with no further estate tax. The second trust normally created in the will of the first to pass away is called a QTIP trust. The QTIP trust is for the benefit of the wife.
All income is given to the wife and principal can only be invaded for the benefit of the wife.
With the QTIP trust, there is a choice. The executor can choose to pay the tax now or later. In nearly all cases, the executor chooses to qualify this trust for the marital deduction and pay tax later. After the surviving spouse passes away, the bypass trust goes to family with no further taxation, but the estate and the QTIP trust are then subject to estate taxation. This taxation could reduce the second estate almost in half and only the balance could be available for family members.