QTIP Trust: 2026 Planning Guide for HNW Households

A Qualified Terminable Interest Property (QTIP) trust solves a problem that outright bequests and portability cannot: how do you claim the unlimited marital deduction — deferring all estate tax — while ensuring that after the surviving spouse dies, the assets go to your chosen heirs rather than whoever the surviving spouse has decided to benefit? This matters for second marriages, for estates above state estate tax thresholds in states that don't recognize federal portability, and for any household where "outright to spouse" isn't the right answer.

What is a QTIP trust?

A QTIP trust is an irrevocable trust that qualifies for the unlimited marital deduction under IRC § 2056(b)(7).¹ The key mechanics:

• The trust must provide the surviving spouse with all income annually (at least), payable at least quarterly.
• No one else can receive distributions from the trust during the surviving spouse's lifetime.
• The executor of the first-to-die spouse's estate makes the QTIP election on Form 706, designating some or all of the trust assets as "qualified terminable interest property."
• The full value of the QTIP assets qualifies for the marital deduction — deferring federal (and often state) estate tax entirely until the surviving spouse's death.
• When the surviving spouse dies, the QTIP trust assets are included in their estate under IRC § 2044 — but the first-to-die spouse, not the surviving spouse, has already determined who the remainder beneficiaries are.

Why QTIP trust in 2026?

With the OBBBA (One Big Beautiful Bill Act, July 2025) making the $15M federal estate tax exemption permanent, many HNW couples think marital trust planning has become optional.² For federal estate tax purposes, a married couple with assets under $30M can achieve $0 federal estate tax through simple outright bequests and a portability election on the first spouse's Form 706 — no trust required. But three scenarios make QTIP trust planning still essential in 2026:

1. State estate taxes — and states that don't recognize portability

Seventeen states and the District of Columbia impose their own estate taxes, most with exemptions far below the federal $15M. And critically, most of these states do not recognize the federal portability election — meaning the surviving spouse cannot use the deceased spouse's unused state exemption.

In these states, a married couple has only one exemption to use at each death — not two. For an Oregon couple with $5M in assets, if the first spouse leaves everything outright to the surviving spouse: (1) $0 Oregon estate tax at first death (marital deduction applies), (2) $4M taxable at second death ($5M − $1M exemption), at Oregon's graduated rates. The QTIP trust doesn't change that result — but a QTIP + bypass trust structure does. See the A/B/QTIP section below.

2. Second marriages and blended families

If you have children from a prior marriage and leave your estate outright to a second spouse, nothing stops that spouse from later disinheriting your children — either intentionally or by default (spending the assets, dying without an updated will, or leaving everything to their own children). A QTIP trust eliminates this risk while still fully deferring estate tax and providing the surviving spouse with income for life.

This is the most common reason $5M–$50M families use QTIP trusts: not because they distrust the surviving spouse, but because protecting the children's inheritance from the second family's estate does not require distrust — it just requires the right structure.

3. Estates above $30M (federal tax still applies)

For married couples with combined assets above $30M, even with both $15M exemptions fully used via portability, a QTIP trust helps manage the estate tax at the second death by deferring tax and keeping assets invested until the surviving spouse actually needs them. The QTIP trust can also hold appreciating assets that will grow above the estate tax exemption, deferring all tax until the second death while the estate continues to compound.

How a QTIP election works

The QTIP trust is established in the first spouse's will or revocable living trust, effective at death. The executor then chooses — on Form 706 — how much of the trust to treat as QTIP (the "QTIP election").¹ The election is flexible in two important ways:

• Partial QTIP election. The executor can elect QTIP status on only a portion of the trust, leaving the rest as a taxable share (or a bypass trust share). This allows precise use of the first spouse's estate tax exemption while qualifying the remainder for the marital deduction.
• Reverse QTIP election for GST. When a QTIP trust is also intended to skip a generation (pass to grandchildren), the executor can make a "reverse QTIP election" under IRC § 2652(a)(3) to treat the first-to-die spouse as the transferor for GST purposes — preserving the first spouse's $15M GST exemption in the trust rather than attributing it to the surviving spouse. See the generation-skipping trust guide for full GST planning detail.

QTIP trust mechanics: income, principal, and remainder

During the surviving spouse's lifetime, a QTIP trust operates as follows:

• Income requirement. All income of the trust — interest, dividends, rents, royalties — must be distributed to the surviving spouse at least annually (IRC § 2056(b)(7)(B)(ii)). The trust cannot accumulate income or redirect it to other beneficiaries.¹
• Principal distributions. The trust can permit (but is not required to give) the surviving spouse access to principal for health, education, maintenance, and support (HEMS standard). Principal distributions to anyone other than the surviving spouse are not permitted during the spouse's lifetime.
• No power to appoint remainder. Unlike a general power of appointment trust (§ 2056(b)(5)), the surviving spouse in a QTIP trust typically has no right to direct where the remainder goes. The first-to-die spouse — through the trust document — names the remainder beneficiaries (usually children, a bypass trust, or charitable beneficiaries).
• Estate inclusion at second death. The full fair market value of the QTIP trust assets is included in the surviving spouse's estate at death under IRC § 2044, regardless of what was distributed during their lifetime. The surviving spouse's estate then pays any estate tax owed, funded by the trust assets or other estate assets.

Interactive QTIP state estate tax savings calculator

This calculator estimates potential state estate tax savings from funding a QTIP trust at the first spouse's death, compared to leaving assets outright to the surviving spouse without a marital trust. Results are illustrative, based on simplified rate assumptions — actual state tax liability requires analysis by a licensed estate attorney in your state.

The A/B/QTIP trust: using both exemptions in non-portability states

In states that don't recognize portability, the bypass trust (also called the "credit shelter trust" or "Trust A/Trust B" structure) is the mechanism for using the first spouse's state exemption. The QTIP trust then handles the balance of the first spouse's estate.

Example: Oregon couple, $10M combined estate, $6M in first spouse's name

1. Bypass trust (Trust B): First spouse's estate funds the bypass trust with $1M (Oregon exemption amount). This trust is not a marital trust — it's taxable at first death, but uses the first spouse's $1M Oregon exemption. The bypass trust grows outside the surviving spouse's estate permanently — all future appreciation is also exempt from Oregon estate tax.
2. QTIP trust (Trust A): The remaining $5M in the first spouse's estate funds a QTIP trust. Oregon marital deduction: $0 Oregon estate tax at first death. At surviving spouse's death, the QTIP is included in their estate — but with only $5M, and the surviving spouse's own $4M estate ($10M − $6M), the combined taxable estate is $9M. Oregon estate tax: approximately $9M − $1M exemption = $8M taxable, estimated $1M+ in Oregon tax.
3. Without bypass + QTIP: The full $10M passes to the surviving spouse. At second death: $10M − $1M Oregon exemption = $9M taxable, similar total tax — but no bypass trust to grow tax-free.

The bigger benefit in this example comes from the bypass trust compounding tax-free. If the $1M bypass trust grows at 7%/year for 20 years, it becomes $3.87M — none of which is in the surviving spouse's Oregon taxable estate. That's $2.87M in additional inheritance to heirs, not estate tax.

QTIP vs. outright bequest vs. portability: when each wins

The reverse QTIP election and GST planning

When a QTIP trust is also intended to benefit grandchildren (skip persons), the first-to-die spouse's GST exemption can be deployed through a "reverse QTIP election" under IRC § 2652(a)(3).⁷

Normally, when a QTIP trust qualifies for the marital deduction, the surviving spouse becomes the "transferor" for GST purposes — meaning the surviving spouse's GST exemption must be used at the second death, not the first spouse's. If the surviving spouse's $15M GST exemption is already allocated elsewhere (or is smaller due to prior gifts), this limits how much of the QTIP can be passed to grandchildren tax-free.

With a reverse QTIP election on Form 706, the first-to-die spouse remains the GST transferor — meaning the first spouse's $15M GST exemption can be allocated to the QTIP trust at the first death. This election must be made on a timely-filed (or extended) Form 706 — it cannot be made retroactively after the return deadline passes.

QTIP trust and IRA beneficiary designations

Naming a QTIP trust as the beneficiary of an IRA raises complex issues that require specialist attention:⁸

• A QTIP trust can qualify as a "see-through trust" for IRA distribution purposes, provided it meets the requirements of Treas. Reg. § 1.401(a)(9)-4 — the trust must be irrevocable, the beneficiaries must be identifiable, and a copy must be provided to the plan administrator by October 31 of the year following the owner's death.
• Under T.D. 10001 (IRS, 2024), if the IRA owner died after their Required Beginning Date (RBD), beneficiaries subject to the 10-year rule must still take annual RMDs in years 1–9, with the full balance due by year 10. A trust as beneficiary must be structured to allow for these distributions — accumulation trusts that fail to distribute RMDs during years 1–9 violate the rule.
• The QTIP's income requirement (all trust income to the surviving spouse annually) can interact awkwardly with the IRA distribution timing requirements. Often, leaving large IRAs directly to the surviving spouse (with a rollover election) and using the QTIP structure for non-retirement assets is simpler and tax-efficient. See the inherited IRA planning guide for the full T.D. 10001 analysis.

Funding a QTIP trust: what assets belong inside

Not all assets are equally suited for a QTIP trust:

• Ideal: Investment accounts, taxable brokerage accounts, real estate, closely-held business interests (non-controlling stakes), and liquid public securities. These generate income that can be distributed to the surviving spouse annually as required.
• Avoid: Non-income-producing assets (growth stocks with no dividend, raw land) unless the trust document includes a "unitrust" provision converting the income requirement to a fixed percentage of trust assets. A traditional QTIP trust with non-income-producing assets risks failing the IRC § 2056(b)(7) income requirement — invalidating the QTIP election.
• IRA/retirement accounts: As noted above, complex. Generally better to designate the surviving spouse directly (or a conduit trust) rather than a QTIP trust.
• Life insurance: An ILIT-held policy should not be funded into a QTIP trust — it eliminates the ILIT's estate exclusion. Life insurance inside a QTIP trust is included in the surviving spouse's estate at second death, potentially defeating the planning. See the life insurance for HNW guide.

How to set up a QTIP trust

A QTIP trust cannot be established as a standalone transaction — it is embedded in the first spouse's will or revocable living trust as a testamentary provision that takes effect at death. The sequence:

1. Estate attorney drafts the marital trust provisions. The will or revocable trust names a trustee, defines the income distribution requirement, specifies any principal distribution standard (HEMS or broader), and names the remainder beneficiaries.
2. QTIP election is made post-death. After the first spouse dies, the executor files Form 706 and makes the QTIP election on Schedule M. The election is irrevocable — once made, the QTIP structure is locked in.
3. Bypass trust is funded simultaneously. If the plan calls for a bypass trust, the executor also allocates assets to the bypass trust (funded up to the state estate tax exemption or a formula clause amount).
4. Reverse QTIP election is made if applicable. Also on Form 706, if GST planning is intended.
5. Trust is administered. The trustee must distribute all trust income to the surviving spouse at least annually and file Form 1041 each year for trust income.