The QTIP Trust: Income for Your Spouse, Principal for Your Children

How a QTIP Trust Works

When the first spouse dies, assets designated for the QTIP trust are transferred into it. The trust is irrevocable from that point — its terms cannot be changed. The surviving spouse is entitled to receive all of the trust's income for the rest of their life, distributed at least annually. The trustee may also be authorized to distribute principal for the spouse's health, education, maintenance, and support.

The surviving spouse cannot withdraw principal at will, cannot change the remainder beneficiaries, and cannot direct where the trust assets go at their death. Those decisions were made by the first spouse when the trust was drafted, and they are permanent.

When the surviving spouse dies, whatever remains in the QTIP trust — the principal, plus any undistributed income — passes to the remainder beneficiaries the first spouse designated. In a blended family, these are almost always the first spouse's children from the prior marriage.

The Marital Deduction

One of the most valuable features of the QTIP trust is that it qualifies for the unlimited marital deduction under IRC Section 2056(b)(7). This means that no estate tax is owed on assets placed in the QTIP trust when the first spouse dies. The full value of the assets passes into the trust tax-free.

The tax is not eliminated — it is deferred. When the surviving spouse dies, the QTIP trust assets are included in the surviving spouse's taxable estate. If the combined value exceeds the estate tax exemption (currently $13.99 million per person for 2026, scheduled to decrease significantly in 2027), estate tax may be owed.

The executor of the first spouse's estate must make an affirmative QTIP election on the estate tax return (Form 706). This election is irrevocable once made and is a critical step that must not be overlooked.

Trustee Selection: The Critical Decision

The trustee of a QTIP trust occupies one of the most conflicted positions in trust law. The trustee must balance the income beneficiary's interest (the spouse wants maximum income and liberal principal distributions) against the remainder beneficiaries' interest (the children want the principal preserved and principal distributions minimized).

Naming the surviving spouse as trustee creates an obvious conflict: the spouse controls the money they stand to benefit from and can make principal invasion decisions that deplete the children's inheritance. Naming one of the children as trustee creates the opposite conflict: the child controls distributions to a stepparent they may resent and has an incentive to minimize those distributions.

The preferred approach is an independent trustee — either a corporate trustee (bank trust department, trust company) or an independent individual who has no beneficial interest in the trust. An independent trustee has a fiduciary duty to balance both interests impartially and can make distribution decisions without the taint of self-interest.

Some families use a co-trustee structure: one trustee selected by the spouse and one selected by the children, with a mechanism for resolving disagreements. This provides representation for both sides but can create gridlock if the co-trustees cannot agree.

What Income Means in a QTIP Trust

The surviving spouse is entitled to "all income" from the QTIP trust, distributed at least annually. Income, in trust law, generally means interest, dividends, rents, and other earnings generated by the trust assets — not capital appreciation. If the trust holds a portfolio of growth stocks that pay minimal dividends, the spouse may receive very little income even though the trust is growing in value.

This creates a tension that the trust document must address. A total return unitrust provision can authorize the trustee to distribute a fixed percentage of the trust's total value each year (typically 3% to 5%), regardless of whether the trust generated that amount in traditional income. This ensures the spouse receives meaningful distributions while giving the trustee investment flexibility.

Alternatively, the trust can authorize the trustee to adjust between income and principal — converting capital gains to distributable income when traditional income is insufficient. The appropriate approach depends on the size of the trust, the spouse's other resources, and state law.

Principal Invasion Standards

Most QTIP trusts authorize the trustee to distribute principal for the surviving spouse's health, education, maintenance, and support. This ascertainable standard is defined in the tax code and provides the trustee with enough flexibility to meet genuine needs while preventing unlimited access.

Health covers medical expenses not covered by insurance. Education covers the spouse's continuing education or professional development. Maintenance and support cover the spouse's accustomed standard of living — not a higher standard, and not unlimited spending, but the level of comfort the spouse enjoyed during the marriage.

Every principal distribution reduces what the remainder beneficiaries will receive. This is why trustee selection matters so much: the trustee must evaluate each request against the standard, considering both the spouse's genuine needs and the children's legitimate expectation of receiving a meaningful inheritance.

Common Mistakes

The most common mistake is failing to fund the QTIP trust properly. Assets that are not transferred into the trust — or whose beneficiary designations do not name the trust — pass outside the QTIP structure and may go outright to the spouse, defeating the entire purpose.

Another common mistake is naming the surviving spouse as sole trustee with broad discretion over principal distributions. This effectively gives the spouse the same control they would have with an outright bequest, undermining the trust's protective structure.

A third mistake is failing to coordinate the QTIP trust with a prenuptial agreement. The prenuptial defines what each spouse's separate property is and may waive the elective share — the statutory right of a surviving spouse to claim a portion of the deceased spouse's estate. Without a prenup, the surviving spouse may be able to override the QTIP structure by electing against the will.

The Bottom Line

The QTIP trust is the essential tool for blended family estate planning because it does what no outright bequest can do: it provides for the surviving spouse without giving the surviving spouse the power to redirect assets away from the deceased spouse's children. Income for the spouse, principal for the children, with an independent trustee balancing both interests.

It is not a perfect solution — no legal structure can eliminate all family conflict — but it is the closest thing estate planning law offers to a fair resolution of the competing interests that define blended family wealth transfer.