What Is Qualified Terminable Interest Property (QTIP)?

Qualified terminable interest property, usually called QTIP, is a category of assets (almost always held in a trust) that qualifies for the federal estate tax marital deduction even though the surviving spouse never gets full control over what happens to the assets after their own death. The spouse who sets up the trust decides who ultimately inherits the principal. The surviving spouse collects every dollar of income the trust produces for the rest of their life. For 2026, the federal estate tax exemption is $15 million per person, and QTIP trusts show up repeatedly in the estate plans of married couples above that threshold, blended families, and anyone who wants lifetime support for a spouse without handing them the power to redirect the wealth.

How the Trust Actually Works

One spouse, the grantor, creates the trust and funds it either during life or through their will. When the grantor dies, the surviving spouse begins receiving all income the trust generates, for life. The trust document names the remainder beneficiaries who will receive whatever is left after the surviving spouse dies, and those beneficiaries are locked in by the grantor. The surviving spouse cannot change them. Neither can the trustee.

A trustee manages the assets, handles investments, makes distributions, and files the trust’s tax returns. The surviving spouse has no authority to redirect the principal to a new spouse, a charity, or anyone else. That restriction is the entire point of the arrangement. It separates lifetime financial support from ultimate control over where the wealth goes.

What Property Qualifies

Federal law requires three conditions to be met before property qualifies as QTIP:

All income must go to the surviving spouse. The trust has to pay every dollar of income it earns to the surviving spouse, at least once a year, for life.
No one, including the surviving spouse or the trustee, may have the power to appoint any part of the trust property to anyone other than the surviving spouse while the spouse is alive.
The executor of the deceased spouse’s estate must affirmatively elect QTIP treatment on the federal estate tax return. Without the election, the property does not qualify no matter how well the trust is drafted.

The income requirement refers to actual economic income from the trust assets. If the trust is funded with property that produces little or no current income, the surviving spouse can require the trustee to make it productive or sell it. Income earned between the last distribution date and the surviving spouse’s death does not have to be paid to the spouse’s estate for the interest to qualify.¹

Making the Election on Form 706

The election is made on Schedule M of IRS Form 706, the federal estate tax return. The executor lists the qualifying property and its value; that listing is treated as the election itself. Once made, it’s irrevocable, though it can be modified on an amended return filed before the original due date, including extensions.²

Form 706 is due nine months after death, with a six-month extension available. That gives the executor up to fifteen months to review the estate and decide how much property to elect as QTIP. The election can cover all qualifying property or only a fraction.¹

If the executor files Form 706 without making the election, a supplemental return can only fix the omission if it’s filed before the original due date. Miss that window and the election is lost for good.²

The Marital Deduction and What It Really Does

Property covered by a valid QTIP election is fully deductible from the first spouse’s taxable estate, just as if the property had been left outright to the surviving spouse. No federal estate tax is owed on those assets at the first death, no matter how large the amount.

The 2026 federal estate tax exemption is $15 million per individual, a permanent figure set by the One, Big, Beautiful Bill signed on July 4, 2025. The exemption will be adjusted for inflation starting in 2027.³

The deduction matters most when the couple’s combined wealth exceeds the exemption. Without it, assets above $15 million in the first spouse’s estate would face rates up to 40%. A QTIP defers that tax until the surviving spouse dies, and by then the surviving spouse’s own exemption shields another $15 million.

Why Blended Families Rely on QTIP Trusts

Tax deferral is only part of the appeal. The rest is control. Consider a common case: someone with children from a first marriage is now married to a second spouse. Leaving everything outright to the second spouse offers no guarantee that any of it will reach the children. The second spouse could spend it, leave it to their own relatives, or redirect it to a future third spouse.

A QTIP trust splits the benefit. The surviving spouse gets lifetime income. The children from the first marriage get the remainder. Neither side can override the other: the surviving spouse can’t cut the children out, and the children can’t cut off the spouse’s income. Even outside blended families, the same structure protects family wealth when a grantor worries about a surviving spouse’s judgment, vulnerability to influence, or the possibility of remarriage.

Can the Surviving Spouse Reach Principal?

The idea that a QTIP surviving spouse “can’t touch the principal” is often too strong. Many trust documents let the trustee distribute principal for the spouse’s health, education, maintenance, and support. Estate planners call this the HEMS standard, and it’s the standard way to build in a safety valve without losing tax benefits.

Under HEMS, the trustee can pay for medical bills, insurance premiums, mortgage payments, property taxes, food, clothing, and reasonable living costs. The standard is calibrated to maintain the spouse’s existing standard of living, not to fund an upgrade. A hip replacement fits comfortably. A vacation home usually doesn’t.

HEMS works from a tax perspective because a power limited to health, education, maintenance, and support counts as an “ascertainable standard” under the Internal Revenue Code. It does not amount to a general power of appointment, so it doesn’t disqualify the property from QTIP treatment or pull it into the surviving spouse’s estate for the wrong reasons.

Whether a specific QTIP trust includes HEMS depends entirely on how it was drafted. Some grantors include it; others deliberately leave it out to keep the principal fully intact for the remainder beneficiaries. It’s one of the most consequential decisions in the document.

What Happens When the Surviving Spouse Dies

The marital deduction defers estate tax; it does not erase it. When the surviving spouse dies, the full value of the QTIP trust assets as of that date is included in the surviving spouse’s gross estate, even though the spouse never controlled the principal and the assets pass to beneficiaries someone else chose.⁴

This surprises some families. The surviving spouse’s own assets are combined with the QTIP value for estate tax purposes. If the total exceeds the applicable exemption ($15 million in 2026), the excess is taxed at rates up to 40%. Estate tax on the QTIP portion is typically paid from the trust itself, not the surviving spouse’s personal assets, but the trust document should say so plainly to prevent fights among beneficiaries.

One benefit that’s easy to overlook: the remainder beneficiaries receive a stepped-up basis in the trust assets. Any appreciation during the surviving spouse’s lifetime escapes capital gains tax when the beneficiaries eventually sell.

Giving Up the Income Interest Early

If the surviving spouse gives away or sells the income interest during life, the tax consequences are harsh. Federal law treats a disposition of any part of the qualifying income interest as a transfer of the entire trust, not just the income stream being surrendered.⁵

In practice, the surviving spouse owes gift tax on the full value of the trust minus the income interest, plus additional gift tax on the income interest itself. Early termination of a QTIP trust, or any restructuring that eliminates the spouse’s income interest, triggers the same rules. Any change to an existing QTIP arrangement needs careful review before anyone signs anything.

QTIP Trust or Portability?

Portability is the simpler tool. Since 2011, a surviving spouse can inherit the deceased spouse’s unused federal estate tax exemption, called the deceased spousal unused exclusion (DSUE). If the first spouse used only $5 million of a $15 million exemption, the survivor picks up the remaining $10 million and adds it to their own.⁶

Claiming portability requires the executor to file Form 706 even when no tax is owed. The election is irrevocable once made, and only the most recently deceased spouse’s DSUE counts, which becomes important if the surviving spouse remarries and the second spouse also dies.²

For couples whose main goal is preserving the federal exemption, portability alone is often enough. QTIP trusts do things portability can’t:

Trust assets are generally shielded from the surviving spouse’s creditors and future divorce proceedings in ways outright ownership isn’t.
Portability hands the survivor total control. A QTIP trust locks in the remainder beneficiaries.
The generation-skipping transfer tax exemption is not portable between spouses. A QTIP combined with a reverse QTIP election lets the first spouse’s GST exemption apply to trust assets that will eventually pass to grandchildren or later generations.⁷
Many states with their own estate tax do not recognize portability. A QTIP trust may be the only way to use both spouses’ state-level exemptions.

Plenty of estate plans use both. Portability catches unused federal exemption as a backstop, while a QTIP handles the control, protection, and GST work portability can’t do.

Drafting Choices That Shape the Result

A QTIP trust is only as good as its trust document. A few decisions carry outsized weight:

Whether to include HEMS provisions, and whether the trustee has discretion or the surviving spouse can demand distributions, changes the balance between the spouse and the remainder beneficiaries.
Naming the surviving spouse as sole trustee creates friction with the rule that no one may appoint property to anyone other than the spouse. Many planners use an independent or corporate trustee to head off challenges.
If the trust holds retirement accounts, a conflict can arise between the IRS requirement that all income go to the spouse and state trust accounting rules that treat most of a retirement account distribution as principal. The document should address this head-on.
Specifying whether estate taxes at the surviving spouse’s death come from the QTIP trust or the spouse’s personal estate prevents disputes between the remainder beneficiaries and the spouse’s heirs.

A poorly drafted QTIP can lose the marital deduction entirely, accelerating estate tax that should have been deferred. The cost of getting the drafting right is a fraction of what the mistake would cost.

1
eCFR. 26 CFR 20.2056(b)-7 – Election With Respect to Life Estate for Surviving Spouse
2
Internal Revenue Service. Instructions for Form 706
3
Internal Revenue Service. What’s New – Estate and Gift Tax
4
Office of the Law Revision Counsel. 26 USC 2044 – Certain Property for Which Marital Deduction Was Previously Allowed
5
Office of the Law Revision Counsel. 26 USC 2519 – Dispositions of Certain Life Estates
6
Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
7
Office of the Law Revision Counsel. 26 USC 2652 – Other Definitions