QTIP Trust Planning for UHNW Families: Marital Deduction + Control

Not tax or legal advice. Verify all figures and strategies with qualified estate counsel before acting.

A QTIP trust (Qualified Terminable Interest Property trust) is the cornerstone estate planning vehicle for married UHNW families who want to claim the unlimited marital deduction while retaining ironclad control over who ultimately inherits the estate. Unlike an outright bequest to a spouse — which hands over full control — a QTIP trust locks in the first spouse's distribution wishes for the children or grandchildren while providing the surviving spouse with lifetime income.¹

Post-OBBBA (July 2025), with the federal exemption permanently at $15M per person, the portability vs. QTIP decision has shifted for many families. But for blended families, second marriages, multi-generational planning, and estates above $30M, the QTIP trust remains indispensable. This guide explains the mechanics, the planning decisions, and where QTIP fits alongside SLATs, IDGTs, and bypass trusts in a comprehensive UHNW estate plan.

How a QTIP trust works

When a married person dies, assets can pass to the surviving spouse in several ways: outright, through a revocable trust that becomes outright at death, or through a QTIP trust. All three qualify for the unlimited marital deduction — no federal estate tax at the first death — but they have very different consequences for who controls the ultimate disposition.

A QTIP trust (authorized by IRC §2056(b)(7)) lets the deceased spouse claim the unlimited marital deduction while dictating:

• The surviving spouse receives all income from the trust at least annually during their lifetime.
• The principal is preserved until the surviving spouse's death (distributions allowed only per the trust terms).
• At the surviving spouse's death, the trust assets pass to whoever the first spouse designated — typically children or grandchildren — not whoever the surviving spouse later chooses.

The QTIP election is made by the executor on the first spouse's estate tax return (Form 706) and is irrevocable once made.

At the surviving spouse's death, the QTIP property is included in their gross estate under IRC §2044.² Estate tax (if any) is calculated on the combined amount, and the trust then distributes according to the first spouse's instructions — not the surviving spouse's will.

The marital deduction election

Federal estate tax allows an unlimited marital deduction for assets passing to a U.S. citizen spouse. A $200M estate can pass entirely estate-tax-free at the first death if structured correctly. The QTIP election preserves this deduction on trust assets that would otherwise fail the terminable-interest rule.

Requirements for a valid QTIP election:

• The surviving spouse must receive all income at least annually (or more frequently)
• No other person can receive any distribution from or use of the principal during the surviving spouse's lifetime
• The executor makes the election on a timely-filed Form 706 (or 706-A for qualified domestic trusts)

Partial QTIP election: The executor may elect to qualify only part of the trust — for example, QTIP-elect $20M of a $35M trust and leave $15M in a bypass trust. The bypass portion uses the decedent's exemption and is excluded from the surviving spouse's estate at death. The partial election must be made to minimize estate tax at the first death to zero while preserving as much of the decedent's exemption as possible.

Qualified Domestic Trust (QDOT): If the surviving spouse is not a U.S. citizen, a standard QTIP trust does not qualify for the marital deduction. The assets must go into a Qualified Domestic Trust (QDOT) that meets additional requirements under IRC §2056A. This is a distinct structure beyond the scope of this guide.

QTIP for blended families

The QTIP trust's most compelling use case is the blended family — and this is where a significant share of $30M+ UHNW families actually encounter it.

Suppose a 65-year-old founder with three children from a first marriage remarries. The new spouse is 20 years younger with limited independent assets. The founder has $80M. The planning objectives:

• Provide meaningful income for the surviving spouse — potentially for 30+ years
• Ensure the estate ultimately passes to the three children from the first marriage
• Avoid having the surviving spouse redirect assets to her own family at her death

Without a QTIP trust, the founder faces a hard choice: leave assets outright to the spouse (full marital deduction, but she can redirect at her death) or leave them in a bypass trust (preserves control, but generates estate tax at the first death and denies access to the full estate for the spouse's lifetime).

A QTIP trust solves this directly. The surviving spouse receives all trust income annually — potentially $2M–$4M per year on a $40M QTIP trust at a 5–10% income yield — while the children receive the full principal at her death. She cannot change the beneficiaries, cannot make principal gifts to her relatives, and cannot redirect the inheritance.

Key design choices for blended families:

• Income only vs. limited principal access: Some QTIP trusts restrict the surviving spouse strictly to net income. Others permit principal distributions for health, maintenance, and support (HMSE standard). Broader access increases comfort but may also increase tension with remainder beneficiaries.
• 5×5 power: The surviving spouse may be given a limited power of appointment (the greater of $5,000 or 5% of trust assets annually). This adds flexibility and may help with GST planning, but also gives the surviving spouse some degree of power over principal distribution.
• Trust protector: Naming an independent trust protector with power to modify distribution standards, remove trustees, or adjust the trust if circumstances change (new tax laws, disability, family conflict) is valuable in long-running trusts spanning decades.
• Independent trustee: The children should not serve as trustee of a trust where the surviving spouse is the beneficiary. The conflicts are obvious. A corporate trustee or independent individual trustee is strongly recommended.

QTIP + bypass trust: the AB structure post-OBBBA

The classic "AB trust" structure — also called the credit shelter + marital trust structure — divides the first spouse's estate into two trusts:

• Trust B (bypass/credit shelter trust): Funded up to the decedent's remaining exemption amount. Assets grow outside both spouses' estates. Surviving spouse may have income rights and HMSE access. Not included in surviving spouse's estate at death — no §2044 inclusion, no step-up in basis.
• Trust A (QTIP/marital trust): Funded with any assets above the exemption amount. QTIP election claimed. Surviving spouse receives all income. Included in surviving spouse's estate at death — §2044 inclusion, full step-up in basis on those assets.

Pre-OBBBA, with the exemption set to sunset to ~$7M in 2026, aggressive bypass trust funding made sense for even moderately wealthy married couples. Post-OBBBA, with the $15M per-person exemption made permanent:

• A couple with $25M total: combined exemption of $30M (with portability) exceeds the estate — no estate tax regardless of structure, and the administrative complexity of a bypass trust may not be worth it.
• A couple with $50M total: the bypass trust strategy saves ~$8M in estate tax on the excess above $30M combined exemption — still valuable, especially when combined with QTIP for assets above the bypass amount.
• A couple with $100M+: AB + QTIP structure is standard, layered on top of active lifetime gifting programs (SLATs, GRATs, IDGTs) to reduce the taxable estate further.

Portability vs. QTIP: which to use in 2026

Portability (IRC §2010(c)) allows the executor of the first spouse's estate to elect to transfer the Deceased Spouse's Unused Exemption (DSUE) to the surviving spouse. If Spouse A has a $15M exemption and uses $5M via lifetime gifts, the remaining $10M DSUE passes to Spouse B — who then has up to $25M total exemption.³

Rev. Proc. 2022-32 late portability election: For estates not required to file Form 706 (i.e., the gross estate plus adjusted taxable gifts do not exceed the filing threshold), the IRS allows a late portability election up to five years from the date of death. For most UHNW families, this provision is irrelevant — they are required to file — but for families where only one spouse has significant wealth, it may apply.⁴

Reverse QTIP election for GST planning

Here's a planning nuance that many families miss entirely: the QTIP election for marital deduction purposes and the GST treatment of QTIP property are governed by separate elections.

By default, when the QTIP election is made, the property is treated as transferred by the surviving spouse for GST purposes under IRC §2652(a)(1). This means the decedent's GST exemption cannot be allocated to the QTIP trust — it's as if the surviving spouse is the transferor, and they'll use their own GST exemption later.

The reverse QTIP election under IRC §2652(a)(3) lets the executor elect to treat the QTIP property as if the QTIP election were not made for GST purposes — preserving the first spouse's GST exemption for allocation to the trust.⁵

Why this matters at $30M+: Suppose Spouse A had $15M in unused GST exemption and funded a $12M QTIP trust. Without the reverse QTIP election, no GST exemption is allocated to the trust — every generation-skipping distribution after the surviving spouse's death potentially triggers 40% GST tax on top of any estate tax. With the reverse QTIP election, Spouse A's executor allocates $12M of GST exemption to the trust at funding, making it GST-exempt in perpetuity for distributions to grandchildren and beyond.

The reverse QTIP election must be made on a timely-filed Form 706. It is irrevocable. For UHNW families with multi-generational transfer objectives — especially those using dynasty trust structures in South Dakota or Nevada — this election is effectively standard practice and should be discussed with estate counsel at the time of the first spouse's death.

QTIP vs SLAT vs outright bequest

Combining QTIP and SLAT: These two strategies are not mutually exclusive. A comprehensive UHNW estate plan might have Spouse A fund a SLAT for Spouse B's benefit (removing $10M from Spouse A's estate during life) while also having a QTIP provision in the revocable trust for assets that pass at death. The SLAT handles lifetime estate reduction; the QTIP handles the testamentary control objective. Most $50M+ estate plans use both.

Common QTIP mistakes

1. Not filing Form 706 to make the election. The QTIP election must appear on a timely-filed Form 706. Estates that fall below the filing threshold (gross estate plus adjusted taxable gifts under $15M) are still required to file if they want to elect portability — and if they want a QTIP election, they must file Form 706 explicitly. Missing the election forfeits the marital deduction on the trust and may trigger unnecessary estate tax.
2. Forgetting the reverse QTIP election. Many estates make the QTIP election but skip the §2652(a)(3) reverse election, losing the decedent's GST exemption permanently. At $30M+, the 40% GST tax on generation-skipping transfers can be as costly as the estate tax itself. This is a one-time, irrevocable election that must happen at the first death.
3. Funding with S-corporation stock. A QTIP trust can hold S-corp stock, but it must qualify as an Electing Small Business Trust (ESBT) or Qualified Subchapter S Trust (QSST). Each structure has limitations that can constrain the planning. Get specialized advice before funding S-corp stock into a QTIP trust.
4. Miscalculating the partial QTIP election. When splitting assets between a bypass trust and a QTIP trust, the partial QTIP election must be sized so that the marital deduction exactly offsets the taxable estate net of the decedent's exemption. Over-electing leaves estate tax savings on the table; under-electing generates unnecessary first-death estate tax. This math requires careful coordination with estate counsel.
5. No trust protector or trustee removal mechanism. QTIP trusts can run for 30+ years. Corporate trustees merge, change fee structures, or deteriorate in service quality. Successor trustee provisions and trust protector powers to remove and replace trustees are essential for long-running trusts.
6. Ignoring state estate tax. Twelve states plus Washington D.C. have separate estate taxes with exemptions ranging from $1M (Oregon) to $6.1M (Massachusetts, Connecticut). If the surviving spouse moves to or lives in one of these states, QTIP planning at the state level may be separate from federal and require different optimization.

Working with a UHNW advisor on QTIP planning

QTIP planning is a team effort that spans several disciplines:

• Estate planning attorney drafts the revocable trust with QTIP provisions, advises on bypass/QTIP split, calculates the partial QTIP election, and makes the reverse QTIP election under §2652(a)(3) on Form 706 at the first spouse's death.
• CPA prepares the ongoing Form 1041 for the QTIP trust, coordinates income distribution compliance, and integrates the surviving spouse's personal return with trust income reporting.
• Financial advisor coordinates which assets go into the QTIP trust vs. bypass trust vs. outright bequest, manages the mandatory income distribution requirement, and reviews the estate plan as the surviving spouse's circumstances change.

Fee-only advisors are particularly well-suited to coordinate QTIP planning because they have no incentive to complicate or expand the structure beyond what the family needs. At $30M+, the QTIP trust rarely stands alone — it's part of a layered plan that combines testamentary QTIP trusts with lifetime gifting through SLATs, GRATs, and IDGTs, plus GST planning and potentially a family office structure for ongoing coordination.

Sources

1. IRC §2056(b)(7) — Qualified terminable interest property: the statutory basis for the QTIP marital deduction election. Surviving spouse must receive all income at least annually; no other person may receive any distribution during spouse's lifetime. Values verified May 2026.
2. IRC §2044 — Certain property for which marital deduction was previously allowed: QTIP trust property included in surviving spouse's gross estate at death, with full §1014 basis step-up at that time. Values verified May 2026.
3. IRC §2010(c) — Applicable credit amount; portability of deceased spousal unused exclusion amount (DSUE). As amended by OBBBA (July 2025): $15M per-person estate and gift tax exemption, permanent with inflation indexing. Values verified May 2026.
4. Rev. Proc. 2022-32 — IRS simplified late-portability election procedure: estates not required to file Form 706 may file a late election up to 5 years from date of death. Confirmed operative May 2026.
5. IRC §2652(a)(3) — Reverse QTIP election: executor may elect to treat QTIP property as if the marital deduction election were not made for GST purposes, preserving the decedent's GST exemption allocation to the trust. Values verified May 2026.

Estate and gift tax law changes frequently. All exemption amounts, tax rates, and regulatory references reflect 2026 under current law (post-OBBBA, July 2025). Verify with qualified estate planning counsel before acting. OBBBA implementing regulations were still being issued as of May 2026; confirm final rules with your attorney.