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 North Carolina, a Qualified Terminable Interest Property (QTIP) trust is a type of irrevocable trust used in estate planning to provide for a surviving spouse while maintaining control over the distribution of trust assets after the surviving spouse's death. The grantor creates the QTIP trust, often in situations involving remarriage and children from a previous marriage, to ensure that the surviving spouse receives income from the trust during their lifetime, with the remaining assets passing to designated beneficiaries upon the surviving spouse's death. The trust is managed by at least one trustee. For tax purposes, the executor of the grantor's estate must file an estate tax return and make a QTIP election to determine which assets are placed in the trust. These assets are not subject to estate tax upon the grantor's death but will be included in the surviving spouse's estate for estate tax purposes when they pass away. This allows for a deferral of estate taxes until the death of the surviving spouse. It's important to note that while QTIP trusts are governed by federal tax law, they must also comply with North Carolina's trust and estate statutes.