Estate planning becomes more complex in second or later marriages—especially when one spouse has significantly more wealth than the other. A potential solution that balances tax efficiency, control, and fairness is the lifetime qualified terminable interest property (QTIP) trust.
Understanding the Lifetime QTIP Trust
A lifetime QTIP trust allows the wealthier spouse to transfer an unlimited amount of assets—such as cash or property—into a trust for the benefit of their spouse, without incurring federal gift or estate taxes. This strategy provides financial security for the less wealthy spouse while enabling the wealthier spouse to retain control over how the assets are ultimately distributed.
Traditionally, QTIP trusts are used after a spouse's death as part of an AB trust structure. When the first spouse dies, the bypass trust (B Trust) is funded with the federal estate tax exemption amount (currently $13.99 million in 2025), while remaining assets are transferred to the marital trust (A Trust), often structured as a QTIP. The QTIP qualifies for the unlimited marital deduction, deferring estate taxes until the surviving spouse passes away.
But there’s an alternative: instead of waiting until death, the wealthier spouse can set up a lifetime QTIP trust during their lifetime. This allows them to make tax-free transfers to the trust using the unlimited marital deduction—so long as the trust is properly structured to meet specific IRS requirements.
Requirements for a Lifetime QTIP Trust
To qualify for the unlimited marital deduction, a lifetime QTIP trust must meet the following criteria:
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It must be irrevocable.
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The beneficiary spouse must be a U.S. citizen.
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The beneficiary spouse must receive all net income from the trust at least annually during their lifetime.
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The spouse must have the right to demand that any non-income-producing property be converted to income-producing property.
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Only the beneficiary spouse may benefit from the trust during their lifetime—no distributions to children or others.
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The beneficiary’s interest in the trust cannot be terminated or redirected to someone else during their lifetime.
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A gift tax return (Form 709) must be filed in the year the gift is made.
Advantages of Planning with a Lifetime QTIP Trust
Outright gifts to a spouse—during life or at death—can result in a complete loss of control over those assets. This risk is especially concerning in blended families, where each spouse may have children from prior relationships and vastly different financial positions.
A lifetime QTIP trust offers several important benefits:
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The wealthier spouse can transfer assets to the trust without using their gift tax exemption.
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The less wealthy spouse receives all trust income and, depending on how the trust is drafted, may receive principal for certain needs.
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When the less wealthy spouse dies, any remaining trust assets are included in their estate, potentially utilizing their unused estate tax exemption.
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If the less wealthy spouse passes away first, the trust can be structured to continue benefiting the wealthier spouse—with potential asset protection—and may even be excluded from their estate for tax purposes.
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After the beneficiary spouse’s death, the remaining assets can pass to children, grandchildren, or other beneficiaries as chosen by the wealthy spouse.
Is a Lifetime QTIP Trust Right for You?
Like all estate planning strategies, lifetime QTIP trusts must be customized to fit your unique circumstances—including your family dynamics, financial goals, and long-term legacy plans.
If you and your spouse are in a second marriage and have a significant difference in assets, a lifetime QTIP trust might be a powerful solution. Contact us today to discuss whether this approach could benefit your family and how to implement it effectively.