Qualified Terminable Interest Property (QTIP) Trust Template

CRITICAL TAX NOTICE: The QTIP election is made by the executor on IRS Form 706 (Schedule M, Box A) and is irrevocable once filed. Failure to make a proper election disqualifies the trust from the marital deduction. Coordinate with the estate's tax counsel immediately upon the grantor's death.

Estate Tax Exemption Reference Table (2025–2026)

*Under the One Big Beautiful Bill Act (enacted 2025), the TCJA sunset was eliminated and the exemption was permanently set at $15 million per person effective January 1, 2026, indexed for inflation. The feared reversion to ~$7 million did not occur.

Portability vs. QTIP Trust Comparison:

QTIP Trust Agreement

This Qualified Terminable Interest Property Trust Agreement ("Trust") is made on [__/__/____] by and between:

Grantor/Settlor: [________________________________] (the "Grantor")
Initial Trustee: [________________________________] (the "Trustee")
Surviving Spouse/Income Beneficiary: [________________________________] (the "Spouse")

For valuable consideration and the mutual covenants set forth herein, the parties agree as follows:

Article I — Trust Name and Formation

1.1 Trust Name. This trust shall be known as the "[________________________________] QTIP Marital Trust" (the "Trust").

1.2 Trust Purpose. The purpose of this Trust is to (a) qualify for the federal estate tax marital deduction under IRC § 2056(b)(7); (b) provide income and support for Grantor's surviving Spouse during Spouse's lifetime; and (c) preserve the remainder interest for Grantor's designated remainder beneficiaries.

1.3 Governing Law. This Trust shall be governed by the laws of the State of [________________________________].

1.4 Irrevocability. This Trust becomes irrevocable upon Grantor's death. Prior to death, if created as a standalone trust, Grantor retains the right to amend or revoke. [Select one: ☐ Revocable during Grantor's lifetime ☐ Irrevocable upon creation]

Article II — Funding and Trust Property

2.1 Initial Funding. Grantor hereby transfers and assigns to Trustee the property described in Schedule A attached hereto and incorporated by reference (the "Trust Estate").

2.2 Additional Contributions. Upon Grantor's death, Grantor's Personal Representative/Executor is directed to fund this Trust with property qualifying for the QTIP election as specified in Grantor's Will or revocable living trust.

2.3 QTIP-Qualifying Property. All property transferred to this Trust must constitute "qualified terminable interest property" within the meaning of IRC § 2056(b)(7). Trust property shall consist of:
- Real property located at: [________________________________]
- Securities and investment accounts: [________________________________]
- Business interests: [________________________________]
- Other property: [________________________________]

Article III — Mandatory Income Distribution (QTIP Requirement)

3.1 Mandatory Annual Income Distribution. Pursuant to IRC § 2056(b)(7)(B)(ii), Trustee shall distribute all net income of the Trust to Spouse at least quarterly (or more frequently as Trustee deems appropriate) during Spouse's lifetime. This provision is mandatory and may not be modified in any manner that would cause the Trust to fail to qualify as qualified terminable interest property.

3.2 Definition of Income. "Income" shall be determined under the applicable state principal and income act ([________________________________] Uniform Principal and Income Act), or if the Trustee exercises the power to convert to a unitrust (if permitted by applicable state law), as provided therein.

3.3 Unproductive Property. Spouse has the right to require Trustee to make trust property productive of income within a reasonable time, or to convert unproductive property to income-producing property. If Trustee retains unproductive property, Trustee shall pay Spouse a reasonable return on the value of such property (not less than the current short-term Applicable Federal Rate).

3.4 No Other Beneficiaries During Spouse's Lifetime. During Spouse's lifetime, no person other than Spouse shall receive any distribution of income or principal from this Trust. Any provision to the contrary would disqualify this Trust from the QTIP marital deduction.

3.5 Five-and-Five Power (Optional). ☐ Spouse is granted a noncumulative power to withdraw each year the greater of $5,000 or five percent (5%) of the Trust's principal, exercisable by written notice to Trustee. [Include only if consistent with estate plan — five-and-five withdrawal does not disqualify QTIP election per IRC § 2041(b)(2)]

Article IV — Principal Distributions

4.1 Principal Distribution Standard. Trustee may (but is not required to) distribute principal to Spouse for Spouse's health, education, maintenance, and support (HEMS), considering:
(a) Spouse's other resources reasonably available;
(b) Spouse's accustomed standard of living;
(c) Preservation of the Trust for remainder beneficiaries.

4.2 Independent Trustee Requirement for Principal Distributions. If principal distribution standards broader than HEMS are used (e.g., "best interests" or "welfare"), an independent trustee (defined as a person who is neither a beneficiary nor related or subordinate to a beneficiary within the meaning of IRC § 672(c)) must serve as the distributing trustee to avoid estate inclusion of the Trust in Spouse's estate.

4.3 Limited Power of Appointment (Optional). ☐ Grantor grants Spouse a limited power of appointment (testamentary only) to appoint Trust principal, at Spouse's death, among Grantor's descendants only. Spouse may not appoint to Spouse's estate, creditors of Spouse's estate, or to any person or entity in a manner that would cause inclusion of Trust assets in Spouse's estate.

Article V — Trustee Provisions

5.1 Initial Trustee. [________________________________] shall serve as initial Trustee.

5.2 Successor Trustees. If [________________________________] is unable or unwilling to serve:
- First Successor: [________________________________]
- Second Successor: [________________________________]
- Corporate/Institutional Trustee (final successor): [________________________________]

5.3 Independent Trustee. For purposes of any discretionary principal distribution, an independent trustee (as defined in Article IV, Section 4.2) must make such distribution decisions. ☐ [Name of independent trustee]: [________________________________]

5.4 Trustee Compensation. Trustee shall be entitled to reasonable compensation as provided by applicable state law, or as follows: [________________________________]

5.5 Bond. Trustee shall ☐ / shall not ☐ be required to post bond.

5.6 Resignation. A Trustee may resign by delivering written notice to all adult beneficiaries and the successor Trustee, effective thirty (30) days after delivery or upon acceptance by the successor Trustee, whichever is earlier.

Article VI — Trustee Powers

Trustee shall have all powers granted under applicable state trust law, plus the following specific powers:

6.1 Investment Powers.
- ☐ Retain any property transferred to the Trust, including closely-held business interests
- ☐ Invest in stocks, bonds, mutual funds, ETFs, real estate, and alternative investments
- ☐ Employ investment advisors, custodians, and financial managers
- ☐ Hold and manage U.S. government obligations, including Series I or EE savings bonds

6.2 Administrative Powers.
- ☐ Execute documents, contracts, and instruments necessary for trust administration
- ☐ Employ attorneys, accountants, and other professionals; pay fees from Trust
- ☐ Allocate receipts and disbursements between income and principal
- ☐ Maintain and repair trust real property; pay taxes and insurance

6.3 Business Powers.
- ☐ Participate in any business entity in which the Trust holds an interest
- ☐ Vote stock, exercise subscription rights, and participate in reorganizations
- ☐ Sell, exchange, or otherwise dispose of trust property on terms Trustee deems appropriate

6.4 Unitrust Conversion. ☐ Trustee may, with court approval or pursuant to applicable state statute, convert this Trust from a traditional income/principal trust to a unitrust paying a fixed percentage (not less than [____]% and not more than [____]% of Trust assets annually) to satisfy income distribution requirements.

Article VII — Tax Provisions and QTIP Election

7.1 QTIP Election Procedure. Upon Grantor's death, Grantor's executor is directed to make the QTIP election with respect to this Trust on IRS Form 706, Schedule M, Box A. The election must be made on the estate tax return filed on or before the due date (including extensions) — nine months after date of death plus six-month extension if timely requested.

7.2 Reverse QTIP Election for GST. Grantor's executor may, in executor's discretion, make the "reverse QTIP election" under IRC § 2652(a)(3) to preserve Grantor's GST exemption in connection with the QTIP election. This election is made on the same Form 706.

7.3 Estate Tax at Surviving Spouse's Death. Under IRC § 2044, the fair market value of QTIP Trust property is includable in Spouse's gross estate at Spouse's death. Estate taxes attributable to Trust property at Spouse's death shall be paid from [☐ Trust principal ☐ Spouse's probate estate ☐ Remainder trust as directed in Schedule B].

7.4 Tax Returns. Trustee shall file all required federal and state income tax returns (Form 1041) during Trust administration.

Article VIII — Spendthrift Provision

8.1 Spendthrift Protection. Except as otherwise provided by applicable law, no interest of Spouse or any beneficiary in the income or principal of this Trust shall be subject to anticipation, assignment, pledge, sale, or transfer in any manner, nor shall any such interest be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any beneficiary.

Article IX — Trust Termination and Distribution at Spouse's Death

9.1 Termination Event. This Trust shall terminate upon the death of the Spouse.

9.2 Distribution of Remainder. Upon termination, Trustee shall distribute the Trust Estate, after payment of all expenses and taxes, as follows:

Primary Remainder Beneficiaries:
- [________________________________] — [____]%
- [________________________________] — [____]%

Contingent Remainder (if primary beneficiary predeceases):
- ☐ Per stirpes among surviving descendants
- ☐ To [________________________________]
- ☐ Other: [________________________________]

9.3 Trust for Minor Children. Any share distributable to a minor beneficiary shall be held in trust until such beneficiary reaches age [____] (not to exceed age 35) under the following terms: [________________________________]

9.4 GST-Exempt/Non-Exempt Shares. If this Trust is not entirely GST-exempt, Trustee shall divide the Trust into separate GST-exempt and non-exempt shares for administration purposes.

Article X — Executor QTIP Election Checklist

The following must be completed upon Grantor's death to preserve the QTIP marital deduction:

☐ Determine date-of-death fair market value of all Trust/QTIP property (obtain qualified appraisals where required)
☐ Confirm Spouse survived Grantor (survivorship period, if any, under applicable state law)
☐ Confirm Spouse is a U.S. citizen (if not, consider QDOT under IRC § 2056A)
☐ Prepare IRS Form 706 — United States Estate (and Generation-Skipping Transfer) Tax Return
☐ Complete Schedule M, Box A — list all QTIP property with description and value
☐ File Form 706 on or before nine months from date of death (or request 6-month extension on Form 4768)
☐ Consider reverse QTIP election under IRC § 2652(a)(3) for GST planning
☐ Obtain IRS closing letter or comparable state filing for state estate tax if applicable
☐ Transfer QTIP Trust property to Trustee; update title to all real property
☐ Open Trust tax identification number (EIN) — apply on IRS Form SS-4
☐ Notify financial institutions, transfer agents, and business entities of trustee authority

Article XI — Miscellaneous

11.1 Severability. If any provision of this Trust is invalid or unenforceable, the remaining provisions shall remain in full force and effect.

11.2 Gender and Number. Masculine, feminine, and neuter pronouns and singular and plural forms shall be interchangeable.

11.3 Entire Agreement. This Trust Agreement, together with Schedules A and B, constitutes the entire agreement of the parties with respect to the Trust.

11.4 Amendment. ☐ This Trust may be amended during Grantor's lifetime by written instrument signed by Grantor and delivered to Trustee. After Grantor's death, no amendment is permitted without court approval.

Signatures

IN WITNESS WHEREOF, the parties have executed this Trust Agreement on the date first written above.

GRANTOR:

Signature: [________________________________]
Printed Name: [________________________________]
Date: [__/__/____]

TRUSTEE (Acceptance of Trust):

Signature: [________________________________]
Printed Name: [________________________________]
Date: [__/__/____]

NOTARY ACKNOWLEDGMENT — GRANTOR:

State of [________________________________]
County of [________________________________]

On [__/__/____], before me, [________________________________], a Notary Public, personally appeared [________________________________], who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity.

Notary Public Signature: [________________________________]
My Commission Expires: [__/__/____]

[NOTARY SEAL]

Schedule A — Trust Property at Formation

Schedule B — Remainder Beneficiary Designations and Distribution Instructions

[________________________________]

Sources: IRC §§ 2056(b)(7), 2044, 2652(a)(3); Treas. Reg. § 20.2056(b)-7; IRS Form 706 Instructions (Rev. August 2025); One Big Beautiful Bill Act (2025) — permanent $15M exemption effective 2026.