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 Indiana, a Qualified Terminable Interest Property (QTIP) trust is a legal instrument 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 type of trust is irrevocable, meaning once established, it cannot be revoked or amended by the grantor. The trust is managed by at least one trustee who is responsible for overseeing the assets and ensuring that the income, or in some cases principal, is distributed to the surviving spouse according to the terms of the trust. QTIP trusts are particularly useful in situations such as second marriages, where the grantor wishes to provide for the current spouse but also wants to ensure that the remaining assets are passed on to children from a previous marriage or other designated beneficiaries. For tax purposes, the assets placed in a QTIP trust are not subject to estate tax upon the death of the grantor; instead, they are taxed after the death of the surviving spouse when the assets are transferred to the final beneficiaries. The executor of the grantor's estate must make a QTIP election on the estate tax return to specify which assets are to be placed in the trust. Indiana state law will govern the specifics of trust creation and administration, while federal law governs the tax treatment of QTIP trusts.