Qualified terminable interest property (QTIP) trust

A QTIP trust allows a decedent spouse to provide support for his or her surviving spouse but ensure that the QTIP trust assets will pass to the decedent spouse’s heirs at the surviving spouse’s eventual death. Assets used to fund the QTIP pass by the decedent’s unlimited marital deduction. The surviving spouse has the right to demand the trust be invested to generate income or to reposition non-productive assets.

In general, the term qualified terminable interest property means property:

  • which passes from the decedent,
  • in which the surviving spouse has a qualifying income interest for life(1), and
  • to which a QTIP election(2) has been made.

(1) The surviving spouse has a qualifying income interest for life if:
  • the surviving spouse is entitled to all the income from the property,
  • the income is payable annually or at more frequent intervals, or has a lifetime legal right to use and enjoy the advantages or profits of another person's property(3), and
  • no person has a power to appoint any part of the property to any person other than the surviving spouse (except this shall not apply to a power exercisable only at or after the death of the surviving spouse).
(2) An election under this paragraph with respect to any property shall be made by the executor on the estate tax return. Such an election, once made, shall be irrevocable.
(3) For example, a QTIP election can be made for the decedent spouse’s residence allowing the surviving spouse to live in the home for his or her lifetime.

Partial QTIP Election

The QTIP election may be made for all or any part of qualified terminable interest property. A partial election must relate to a fractional or percentile share of the property so that the elective part will reflect its proportionate share of the increase or decline in the whole of the property. Thus, if the interest of the surviving spouse in a trust (or other property in which the surviving spouse has a qualified life estate) is qualified terminable interest property, an election may be made for a part of the trust (or other property) only if the election relates to a defined fraction or percentage of the entire trust (or other property). The fraction or percentage may be defined by means of a formula.

Automatic QTIP Election

An automatic QTIP election is created for certain joint and survivor annuities that are includible in the estate. To qualify, only the surviving spouse can have the right to receive payments before the death of the surviving spouse.

ABC Trust – Reverse Q-TIP election

An ABC trust is an “AB” trust arrangement with a QTIP trust (the “C” trust). If QTIP treatment has been elected for any gifts in trust listed on Schedule A Form 706, then an election can be made to treat the entire trust as non-QTIP for purposes of the GST tax. The purpose of this election is to preserve the decedent GSTT exemption.

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Also see:

Totten trust

Spendthrift trust

Bypass trust

Marital trust

Pour-over trust

§2503(b) trust

§2503(c) Trust

Sprinkling provision in trusts

Page Last Reviewed or Updated: 28-Dec-2015