A qualified terminable interest property (QTIP) trust is an estate planning tool that allows the person making the trust (the grantor or settlor) to leave assets for their surviving spouse and direct how the assets remaining in the trust will be distributed to named beneficiaries at the death of the surviving spouse. QTIP trusts are irrevocable (cannot be revoked). At least one trustee (person or entity) must be appointed by the trust to manage the assets of the trust.

A QTIP trust will usually provide regular payments to the surviving spouse—often from the income generated by the assets in the trust. QTIP trusts are often used when the grantor remarries and has children from a previous marriage. If the grantor dies before the grantor’s subsequent spouse dies, the QTIP trust will make income payments to the subsequent spouse and hold the principal assets that were placed in the trust until the surviving spouse dies—at which point the assets will be distributed to the trust beneficiaries.

At the death of the grantor, the executor of the grantor’s estate will file the estate’s tax return and make an election (the QTIP election) of which assets will be placed in the QTIP trust by listing them on a schedule to the estate’s tax return. The assets in a QTIP trust are not subject to estate tax at the grantor’s death but are subject to estate tax at the death of the grantor’s surviving spouse.

In Colorado, a Qualified Terminable Interest Property (QTIP) trust is a type of trust designed to provide financial support to a surviving spouse while maintaining control over the distribution of the trust assets after the surviving spouse's death. This estate planning tool is particularly useful for individuals who have remarried and wish to ensure that children from a previous marriage ultimately receive their intended inheritance. The QTIP trust is irrevocable, meaning once established, it cannot be altered or revoked. The trust must have at least one trustee to manage its assets. The trust typically provides income to the surviving spouse, with the principal preserved for the named beneficiaries, who will receive the remaining assets after the surviving spouse's death. For tax purposes, the assets placed in a QTIP trust are not subject to estate tax upon the death of the grantor but will be included in the surviving spouse's estate for estate tax purposes when they pass away. The executor of the grantor's estate must file an estate tax return and make a QTIP election to specify which assets are to be placed in the trust. This election allows the grantor to take advantage of the unlimited marital deduction for estate tax purposes while still directing the ultimate disposition of the trust assets.