What is a QTIP Trust and how does it work?

A Qualified Terminable Interest Property (QTIP) Trust is an irrevocable trust created at the death of the first spouse. It holds the deceased spouse's assets for the benefit of the surviving spouse during the survivor's lifetime, and then distributes the remaining assets to the remainder beneficiaries — typically children from the first spouse's prior marriage — upon the surviving spouse's death. Key mechanics: • The surviving spouse receives all net income from the trust at least annually — this is a legal requirement for the QTIP election • The Trustee may also distribute principal to the surviving spouse for health, education, maintenance, and support (HEMS) if the trust so provides • The surviving spouse has no power to change the remainder beneficiaries — the first spouse's children are protected • The executor of the first spouse's estate makes the QTIP election on IRS Form 706, qualifying the trust assets for the federal marital deduction and deferring estate tax until the surviving spouse's death • Washington State also recognizes the QTIP election for purposes of the Washington Estate Tax (RCW 83.100.047) At the surviving spouse's death, the QTIP trust assets are included in the surviving spouse's taxable estate — but by then, the assets pass directly to the remainder beneficiaries the first spouse named, not to the surviving spouse's new family or estate.

Who needs a QTIP Trust?

A QTIP Trust is most commonly used in three situations: 1. Blended families — When one or both spouses have children from a prior marriage, a QTIP Trust ensures that the first spouse's assets ultimately pass to their own children, not to the surviving spouse's new partner or the surviving spouse's children from another relationship. 2. Large estates subject to estate tax — For estates that may be subject to the federal estate tax (over $13.99 million per person in 2025) or the Washington State estate tax (over $3 million per person), a QTIP Trust defers the estate tax until the surviving spouse's death, preserving more assets for the family. 3. Protecting a surviving spouse from their own financial decisions — If the surviving spouse is not financially sophisticated, has creditor problems, or may be vulnerable to undue influence from others, a QTIP Trust provides professional management and protects the assets from dissipation. A QTIP Trust is not appropriate for every couple. For couples with no children from prior relationships and modest estates, a simpler Revocable Living Trust with outright distribution to the surviving spouse is usually sufficient.

What is the QTIP election and why does it matter?

The QTIP election is a choice made by the executor of the first spouse's estate on IRS Form 706 (the federal estate tax return). By making the election, the executor designates the trust assets as Qualified Terminable Interest Property, which qualifies them for the federal marital deduction — meaning no federal estate tax is owed at the first spouse's death. The trade-off: the QTIP trust assets are included in the surviving spouse's taxable estate at their death, even though the surviving spouse does not own the assets outright and cannot change the remainder beneficiaries. Washington State QTIP election: Washington State has its own estate tax with a $3 million exemption (for deaths on or after July 1, 2026). Washington also allows a separate QTIP election on the Washington State estate tax return (Form WA-706), which can be made independently of the federal election. This allows careful planning to minimize both federal and Washington State estate taxes. The QTIP election is irrevocable once made. Christopher S. Mulvaney works with estate tax professionals to ensure the election is made correctly and in a way that minimizes the combined federal and Washington State estate tax burden.

How does a QTIP Trust interact with the Washington State Estate Tax?

Washington State imposes its own estate tax on estates exceeding $3,000,000 (for deaths on or after July 1, 2026). Washington does not allow portability of the state exemption between spouses — meaning the unused portion of the first spouse's $3 million exemption cannot be transferred to the surviving spouse. A QTIP Trust addresses this problem in two ways: 1. Marital deduction deferral — Assets placed in a QTIP Trust qualify for the Washington State marital deduction, deferring Washington Estate Tax until the surviving spouse's death. 2. Credit Shelter Trust coordination — A well-drafted estate plan for a married couple with a combined estate over $3 million typically uses both a Credit Shelter Trust (also called a Bypass Trust or Disclaimer Sub-Trust) and a QTIP Trust: • The Credit Shelter Trust holds assets up to the first spouse's $3 million Washington State exemption — these assets are never taxed in either spouse's estate • The QTIP Trust holds the excess — these assets are taxed at the surviving spouse's death, but only after the surviving spouse has had the benefit of the income for their lifetime For a Washington couple with a $6 million estate, this structure can completely eliminate Washington State estate tax at the first spouse's death and significantly reduce it at the surviving spouse's death.

Can the surviving spouse change the QTIP Trust beneficiaries?

No. This is one of the most important features of a QTIP Trust — and the primary reason blended families use it. The surviving spouse receives income from the QTIP Trust for life, and may receive principal distributions for HEMS if the trust so provides. But the surviving spouse has no power to: • Change the remainder beneficiaries • Withdraw the principal for their own use beyond what the trust permits • Give the assets to a new spouse or partner • Disinherit the first spouse's children The remainder beneficiaries — typically the first spouse's children — are locked in at the time the trust is created. This gives the first spouse complete confidence that their children will receive their inheritance, regardless of what happens after the first spouse's death. Note: The surviving spouse is typically named as the Trustee of the QTIP Trust, which gives them day-to-day control over the investments and HEMS distributions. If there is concern about the surviving spouse acting in the children's best interests, a co-trustee or independent trustee can be named.

How is a QTIP Trust different from a Credit Shelter Trust?

Both QTIP Trusts and Credit Shelter Trusts (also called Bypass Trusts or Disclaimer Sub-Trusts) are used in estate tax planning for married couples, but they serve different purposes: Credit Shelter Trust: • Holds assets up to the deceased spouse's estate tax exemption ($3 million for Washington State) • Assets are NOT included in the surviving spouse's taxable estate — they bypass estate tax entirely • Surviving spouse may receive income and principal for HEMS • Remainder passes to children or other beneficiaries at the surviving spouse's death • Does NOT qualify for the marital deduction — estate tax is owed at the first spouse's death if the estate exceeds the exemption QTIP Trust: • Holds assets in excess of the deceased spouse's estate tax exemption • Assets ARE included in the surviving spouse's taxable estate — estate tax is deferred, not eliminated • Surviving spouse must receive all net income at least annually • Qualifies for the marital deduction — no estate tax at the first spouse's death • Remainder passes to the first spouse's designated beneficiaries (typically children) at the surviving spouse's death For large estates, the two trusts are used together: the Credit Shelter Trust holds the exemption amount (tax-free forever), and the QTIP Trust holds the excess (tax-deferred until the surviving spouse's death).

Christopher S. Mulvaney, Esq. — Attorney-and-Counselor-at-Law — Professionalism with Integrity — WSBA#33595 — Licensed Only in Washington State

[email protected]Bellevue, WA

Qualified Terminable Interest Property (QTIP) Trust

Trusts Overview

Blended Family & Marital Planning

Provide for your spouse today — protect your children's inheritance for tomorrow.

A Qualified Terminable Interest Property (QTIP) Trust is a powerful estate planning tool for married couples — especially those with children from a prior marriage. It allows the first spouse to die to provide income for the surviving spouse for life, while ensuring that the remaining trust assets ultimately pass to the children or other beneficiaries the first spouse designates. The QTIP election also qualifies the trust assets for the federal and Washington State marital deduction, deferring estate tax until the surviving spouse's death.

Reference Links

Married Revocable Living Trusts Disclaimer Sub-Trust (Credit Shelter) Tax Treatment of Trusts Testamentary Trusts Trusts Overview Schedule a Free Zoom Consultation

Ready to Protect Your Family?

MetLife Legal Plans accepted. No-cost, no-obligation Zoom consultation with Christopher Mulvaney.

Schedule a Free Zoom Consultation Trusts Overview

Qualified Terminable Interest Property (QTIP) Trust | Mulvaney Law Offices

Qualified Terminable Interest Property (QTIP) Trust

Ready to Protect Your Family?