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 South Carolina, a Qualified Terminable Interest Property (QTIP) trust is a type of trust that is used in estate planning to provide for a surviving spouse while maintaining control over the distribution of the trust assets after the surviving spouse's death. This is particularly useful in situations such as second marriages with children from previous relationships. The QTIP trust is irrevocable, meaning once established, it cannot be altered or revoked. The trust is managed by at least one trustee who is responsible for overseeing the assets and ensuring that the income, often generated from these assets, is paid to the surviving spouse. Upon the death of the grantor, the executor of the estate will file a tax return and make a QTIP election to determine which assets are placed into 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 tax purposes when they pass away. It's important to note that while South Carolina state law will govern the administration of the trust, federal law primarily governs the tax treatment of QTIP trusts.