QTIP Trusts &
the Marital Deduction
A QTIP trust provides for the surviving spouse for life and then passes to the heirs the first spouse chose. It only avoids estate tax at the first death if the executor makes the QTIP election on Form 706, and even when no tax is due, the election can pay off later.
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What a QTIP trust does
Many married couples’ wills or trusts leave assets to a trust for the surviving spouse rather than to the spouse outright. The spouse receives the income for life, and when the spouse dies, what is left goes to the people the first spouse chose, often children from a first marriage. A QTIP (qualified terminable interest property) trust is the kind of trust that can do this and still qualify for the marital deduction, so no estate tax is due at the first death.
It only works if the executor makes the QTIP election on the federal estate tax return, Form 706, for the first spouse.
From the first death to the second
Do we need the election if no estate tax is owed?
The federal exemption is $15 million per person in 2026, so most families will not owe federal estate tax either way. The election can still be worth making:
- A second step-up in basis: property in a QTIP trust gets a new basis when the surviving spouse dies, which can wipe out years of capital gains for the children.
- Keeping the first spouse’s exemption: combined with the portability election, it can preserve the first spouse’s unused exemption for the survivor.
- State estate tax: in states with their own estate tax, a state QTIP election can put off state tax until the second death.
There are also cases where the election is the wrong choice, for example when the assets are expected to grow a great deal and a trust that stays out of the survivor’s estate would save more. The trust document sometimes lets the executor decide after death, which is why this decision deserves a close look before the Form 706 is filed.
If you are the trustee
- All of the trust’s income must be paid to the surviving spouse at least once a year
- Principal can be paid out only as the trust document allows
- The trust files its own Form 1041 each year, and the spouse reports the income on their own return through a K-1
- Capital gains are usually kept in the trust and taxed at trust rates, which reach 37% above $16,000 of income in 2026
- When the spouse dies, the trust’s value is included in the spouse’s estate, and the spouse’s estate may be able to recover any estate tax on it from the trust
A caution for the surviving spouse
If the surviving spouse gives away or sells their right to the trust income, the tax law treats it as a gift of the entire trust. Talk to us before any change like that.
What we handle
- Deciding whether to make the QTIP election, in full or in part
- Form 706 with the election and the portability election
- State estate tax elections where the state has its own tax
- The QTIP trust’s annual Form 1041 and the spouse’s K-1
- The second estate, when the trust is included and passes to the heirs
Frequently Asked Questions
What is a QTIP trust?
A QTIP trust is a trust for a surviving spouse that pays the spouse all of the income for life and then passes to the people the first spouse chose, often children from an earlier marriage. If the executor makes the QTIP election on the first spouse’s Form 706, the trust qualifies for the marital deduction, so no estate tax is due at the first death. The trust is then counted in the surviving spouse’s estate at the second death.
Do I have to file Form 706 to make the QTIP election?
Yes. The election can only be made on Form 706 for the first spouse. It is due 9 months after death, or 15 months with an extension. Even when no estate tax is owed, filing to make the QTIP and portability elections can save taxes later.
Why would we make the election if the estate is under $15 million?
Because it can still pay off. Property in a QTIP trust gets a new, higher basis when the surviving spouse dies, which can eliminate capital gains tax for the children. It can also help preserve the first spouse’s unused exemption, and in states with their own estate tax, it can put off state tax until the second death.
Can the surviving spouse take money out of a QTIP trust?
The spouse must receive all of the income at least once a year. Whether the spouse can receive principal depends on the trust document; many allow it for health, education, and support. The spouse should not give away or sell the right to the income, because the tax law treats that as a gift of the entire trust.