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 Tennessee, a Qualified Terminable Interest Property (QTIP) trust is a type of trust that allows a grantor 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 trust is irrevocable, meaning it cannot be altered or revoked once established. The grantor appoints at least one trustee to manage the trust assets, which typically generate income for the surviving spouse. Upon the death of the grantor, the executor of the estate will file an estate 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 QTIP trusts are recognized at the federal level for estate tax purposes, Tennessee does not have a state estate tax, so the primary considerations for QTIP trusts in Tennessee would be related to federal estate tax planning and the management and disposition of assets according to the trust terms.