A qualified terminable interest property trust (QTIP trust) is a special form of irrevocable trust funded by one spouse for the benefit of the other spouse that qualifies for the unlimited marital deduction. The beneficiary spouse is entitled to all the income of the trust for life, payable at least annually, and can receive distributions of principal as needed. When the trust terminates, its remaining principal is distributed as directed by the grantor in the trust instrument.
QTIP trusts are popular estate planning vehicles. They allow the trustee great flexibility to provide for the needs of a surviving spouse and allow a deceased spouse to direct where the QTIP trust's remaining assets should be distributed at the surviving spouse's death. A charity can be a remainder beneficiary of a QTIP trust, for example.
A QTIP trust is included in the beneficiary spouse's estate, so it does not reduce estate taxes. It may, however, reduce estate settlement costs because its assets are not included in the beneficiary spouse's probate estate.
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