Estate planning for couples in a second or subsequent marriage can be tricky, especially if their estates are disproportionate. One solution that allows the more affluent spouse to maintain control of their property and wealth and minimize potential estate taxes—while keeping their spouse happy—is the lifetime qualified terminable interest property (QTIP) trust.
The Basics of Creating a Lifetime QTIP Trust
In the estate planning world, a lifetime QTIP trust is a type of trust that allows a wealthier spouse to transfer an unrestricted amount of assets (money and property) into the trust for the benefit of their less wealthy spouse, free from estate and gift taxes.
A common estate planning strategy for high-net-worth couples has been to use a QTIP trust, not while the couple is alive, but after the first spouse’s death under what is often referred to as an AB Trust structure. After the first spouse dies, the B Trust (bypass trust) is funded with an amount equal to the federal estate tax exemption (currently $13.99 million in 2025). The remaining assets are allocated to the A Trust (marital trust). The A Trust is often structured as a QTIP trust, which qualifies for the unlimited marital deduction, allowing assets to pass to the surviving spouse without triggering estate tax until their death.
But what if instead of creating and funding a QTIP trust after death, the wealthy spouse creates and funds a lifetime QTIP trust for their spouse’s benefit with tax-free gifts while the wealthy spouse is alive? Assets transferred from the wealthy spouse into the lifetime QTIP trust are considered tax-free gifts under the unlimited marital deduction, which allows qualifying spouses to transfer an unlimited amount of assets to each other during life or at death without incurring federal gift or estate tax, as long as certain requirements are met. The lifetime QTIP trust must meet the following criteria to qualify for the unlimited marital deduction:
- The trust must be irrevocable.
- The beneficiary spouse must be a US citizen.
- The beneficiary spouse must be entitled to receive all net income from the trust at least annually during their lifetime.
- The beneficiary spouse must have the right to demand that any non-income-producing property be converted into income-producing property.
- Only the beneficiary spouse can benefit from the trust during their lifetime. No distributions to children or others are allowed before the beneficiary spouse’s death.
- The interest granted to the beneficiary spouse cannot be terminated or diverted to someone else during the beneficiary spouse’s lifetime.
- A federal gift tax return (Form 709) must be filed in a timely manner in the year of the gift to the trust.
Planning with a Lifetime QTIP Trust Offers a Multitude of Benefits
Outright gifts to your spouse during life or after death lead to total loss of control over those assets. If you and your spouse have children from prior marriages, the problem may be exacerbated by the difference in your wealth—while the wealthier spouse will be fine if the less wealthy spouse dies first, the opposite is not true. If you and your spouse are in this situation, a lifetime QTIP trust offers the following benefits:
- The wealthy spouse can create and fund a lifetime QTIP trust without using any gift tax exemption.
- The less wealthy spouse will receive all of the trust income during their lifetime and may be entitled to receive trust principal for limited purposes if the wealthier spouse desires.
- When the less wealthy spouse dies, the assets remaining in the trust will be included in their estate, using the less wealthy spouse’s otherwise unused federal estate tax exemption.
- If the less wealthy spouse dies first, the remaining trust property can continue in an asset-protected lifetime trust for the wealthy spouse’s benefit (subject to applicable state law) and, if structured properly, the remainder can be excluded from the wealthy spouse’s estate when they
- After the less wealthy spouse dies, the balance of the trust can be designed to pass to the wealthy spouse’s children and grandchildren or other beneficiaries chosen by the wealthy spouse.
Do You and Your Spouse Need a Lifetime QTIP Trust?
Like other types of estate planning tools and strategies, lifetime QTIP trusts are not one-size-fits-all. They must be tailored to each couple’s unique goals, family dynamics, and financial situation. Please call us if you think you and your spouse could benefit from a lifetime QTIP trust. We will help you determine what will work best for your family.