# QTIP Trusts: Definition, How They Work, and Advantages

![QTIP Trusts: A trust that enables a grantor to provide for a surviving spouse and maintain control of how assets are distributed once the surviving spouse dies.](https://www.investopedia.com/thmb/IaChCE18jZXkYFR9wBEFT0WamqU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Qtip_v1_final-3fecc6eab1604c47be9490d770afa9c4.png)

*— Investopedia / Michela Buttignol*

> **Definition**
>
> A qualified terminable interest property (QTIP) trust allows a surviving spouse to receive income from the trust until their death, when the balance is paid to the original grantor’s beneficiaries.

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

A qualified terminable interest property (QTIP) trust is a legal document that protects an individual's assets on behalf of the surviving spouse while maintaining control over how the assets are distributed once the surviving spouse dies.

Income generated from the QTIP trust, and sometimes the principal, is paid to the surviving spouse to ensure lifelong support.

### Key Takeaways

*   Under a QTIP trust, income is paid to a surviving spouse until that spouse's death. At that point, the balance of the funds is paid to the beneficiaries specified by the original grantor.
*   QTIP trusts are a useful tool in estate planning and are especially helpful when the trust grantor has surviving children from multiple marriages.
*   A QTIP trust also has tax advantages for the surviving spouse. Estate taxes are not assessed until after the death of the surviving spouse.

## How Qualified Terminable Interest Property (QTIP) Trusts Work

The QTIP trust is a type of [irrevocable trust](https://www.investopedia.com/terms/i/irrevocabletrust.asp) that is most commonly used by individuals who have children from more than one marriage. The surviving spouse receives an income for life from the trust but the grantor directs how the remainder of the trust will be distributed after the surviving spouse's death.

Although it is most often used by individuals who have children from more than one marriage, the QTIP trust can be used to benefit any family member, friend, or cause.

The surviving spouse never assumes the power of appointment over the principal. This prevents the assets from going to a new spouse should the beneficiary remarry.

## Tax Advantages of a QTIP Trust

The QTIP trust has certain tax advantages for the surviving spouse.

The income paid to the surviving spouse from the QTIP trust qualifies for [marital deduction](https://www.investopedia.com/terms/u/unlimited-marital-deduction.asp). That means that the assets in the trust are not taxable after the first spouse’s death. Instead, the property becomes taxable after the second spouse's death, with this [liability](https://www.investopedia.com/terms/l/liability.asp) transferring to the named beneficiaries.

> **Tip**
>
> QTIP trusts are reported on tax returns using IRD Form 706.

## QTIP Trustee Appointments

A minimum of one [trustee](https://www.investopedia.com/terms/t/trustee.asp) must be appointed to manage the trust, though there may be multiple trustees named. The trustee or trustees will be responsible for controlling the trust and have authority over the management of the assets.

Potential trustees include the surviving spouse, a financial institution, an attorney, or a family member or friend.

## Spousal Payments and QTIP Trusts

The surviving spouse named within a QTIP trust typically receives payments from the [trust](https://www.investopedia.com/terms/t/trust.asp) based on the income the trust generates, similar to stock dividends. Payments may also be made from the principal if the grantor allows it when the trust is created.

Payments will be made to the spouse for life. Upon the person's death, the payments cease as they are not transferable. The [assets](https://www.investopedia.com/terms/a/asset.asp) in the trust become the property of the listed beneficiaries.

## QTIP Trust vs. Marital Trust

Either a QTIP trust or a marital trust can help you achieve similar estate planning goals. The key differences lie in how the assets in the trust are controlled.

A QTIP trust gives the grantor control over how the assets within the trust will be distributed after the death of the surviving spouse.

A [marital trust](https://www.investopedia.com/terms/m/marital-trust.asp) allows the surviving spouse to dictate how the assets are distributed.

Unlike a QTIP trust, a marital trust does not require distributions to the surviving spouse. The surviving spouse controls the trust and makes the decisions.

> **Fast Fact**
>
> As the surviving spouse is never the true property owner, a lien cannot be put against the property within the trust or the trust itself.

## Benefits of a QTIP

While QTIPs are similar to marital trusts, there are benefits in certain situations.

*   **You control where the assets end up**: You control who your assets pass to after both you and your spouse die. This means that no matter what your spouse does after you pass on, any assets left in the trust are passed on to the secondary beneficiaries you name. These could be your children, grandchildren, or children from a previous marriage.
*   **QTIPs protect all assets and income**: A surviving spouse may eventually be unable to make sound financial decisions. Dictating the trust's distribution in advance protects all of the beneficiaries from misuse of the assets.

## How Does a QTIP Trust Work?

A QTIP trust is an irrevocable trust that pays income generated from the assets to a surviving spouse. When that spouse dies, the assets in the trust pass to the beneficiaries named by the grantor.

## What Is the Difference Between a QTIP and Marital Trust?

The two are similar, except that a QTIP is not controlled by the surviving spouse. The surviving spouse receives income generated by the trust. Eventually, the assets will be distributed as the grantor specified.

## What Are the Requirements of a QTIP Trust?

A QTIP is required to pay all of its income to the spouse beneficiary. There can be no other beneficiaries until that spouse passes away.

## The Bottom Line

QTIP trusts are designed to ensure that your spouse is taken care of for life while the trust remains intact for other named beneficiaries.

QTIPs are not suitable for everyone or every situation. If you're not concerned with how your estate is distributed after your spouse dies, you don't need a QTIP. But if you want to determine how your assets are distributed after your spouse passes on, a QTIP will ensure your wishes are followed.

> **Article Sources**
>
> 1.  Cornell Law School, Legal Information Institute. "[Qualified Terminable Interest Property (QTIP) Trust](https://www.law.cornell.edu/wex/qualified_terminable_interest_property_%28qtip%29_trust)."
>     
> 2.  Gunderson Law Group. "[An Essential Guide To QTIP Trusts In Estate Planning](https://www.gundersonlawgroup.com/estate-planning/an-essential-guide-to-qtip-trusts-in-estate-planning/)."
>     
> 3.  Internal Revenue Service. "[Instructions for Form 706](https://www.irs.gov/pub/irs-pdf/i706.pdf)." Page 40.