QTIP Trust Planning

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If you are married and have assets you want to protect for your children, or if you have been married more than once, a QTIP trust could be one of the most useful tools in your estate plan. At Slowik Estate Planning in Atlanta, Georgia, we work with families every day who want to provide for a surviving spouse while making sure their assets eventually reach the right people. A QTIP trust lets you do exactly that. This page explains what a QTIP trust is, how it works under federal and Georgia law, and why it may be the right choice for your family.

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What Is a QTIP Trust and How Does It Work?

QTIP stands for Qualified Terminable Interest Property. A QTIP trust, governed by IRC Section 2056(b)(7), allows the first spouse to die to control the distribution of trust assets after the surviving spouse’s death while still providing for the surviving spouse during their lifetime. That is a big deal for many families in Atlanta and across Georgia.

Here is how it works in plain terms. You set up the trust as part of your estate plan. When you pass away, your assets go into the trust. Per IRC Section 2056(b)(7)(B)(ii)(I), the surviving spouse must have a qualifying income interest for life in the QTIP trust. This means that all the income generated by the trust must be paid to the spouse at least annually, and the spouse cannot have the power to appoint the property to anyone other than themselves during their lifetime. When your surviving spouse later passes away, the remaining assets in the trust pass to the beneficiaries you named, such as your children.

Think about this example. Say you have children from a first marriage and you remarry later in life. You love your new spouse and want to provide for them. You also want your children to eventually inherit your estate. A QTIP trust solves that problem. Your spouse gets income for life. Your children get the remaining assets after your spouse passes. Everyone is provided for, and you made that decision, not your surviving spouse.

The QTIP trust allows the deceased spouse to benefit the surviving spouse by providing income and access to principal to the survivor, but not allowing the survivor to modify the terms of the trust to alter the disposition of the assets of the trust at the death of the survivor. That level of control is one of the main reasons families choose this type of trust. It gives you peace of mind that your wishes will be honored long after you are gone.

Georgia trust law, found under O.C.G.A. Title 53, Chapter 12 (the Revised Georgia Trust Code of 2010), governs how trusts are created and administered in our state. Under O.C.G.A. Section 53-12-21, no formal words are required to create a trust, as long as the intent is clear and all required elements are present. A well-drafted QTIP trust must meet both Georgia trust law requirements and federal tax law requirements to work as intended. That is why working with an experienced Atlanta estate planning lawyer at Slowik Estate Planning matters so much.

The Federal Tax Benefits of a QTIP Trust

One of the biggest reasons people use a QTIP trust is the federal estate tax marital deduction. An exception to the terminable interest rule is provided for Qualified Terminable Interest Property (QTIP) under IRC Section 2056(b)(7). QTIP allows a marital deduction even if the surviving spouse only receives a life income interest and has no control over the property’s ultimate disposition. In simple terms, the assets in the trust are not taxed when the first spouse dies. That tax is deferred until the second spouse passes away.

This trust structure qualifies for the marital deduction, deferring estate taxes until the second spouse’s death. For families with large estates, that deferral can be worth a significant amount of money. It gives the surviving spouse time to use the income from the trust and allows the estate more time to grow before taxes come due.

There is one important step you cannot skip. The executor must make an affirmative election to designate the property as QTIP on the estate tax return. If that election is not made on time, the trust will not qualify for the marital deduction. A $2 million bequest was held to be a terminable interest and includible in the gross estate because the estate failed to make the required affirmative QTIP election on the Form 706, despite it being a terminable interest. That is a costly mistake, and it is the kind of error that proper planning prevents.

It is also important to understand what happens on the back end. QTIP is included in the surviving spouse’s estate at death under IRC Section 2044 or is subject to gift tax if transferred during life under IRC Section 2519, ensuring the property is taxed within the marital unit. The IRS does not let the assets escape taxation forever. They are simply deferred. That said, deferral is still a powerful planning tool. It allows your family to keep more money working for them in the short term.

Additionally, under Section 1014(b)(9), those assets should receive a step-up in income tax basis if they are includible in the gross estate. That step-up can reduce capital gains taxes when assets are eventually sold by your beneficiaries. Proper QTIP trust planning, done correctly, creates multiple layers of tax benefit for your family.

Who Should Consider a QTIP Trust in Atlanta, Georgia?

A QTIP trust is not for everyone, but it is a great fit for certain families. Who should think seriously about one? Here are the most common situations where a QTIP trust makes sense.

First, people in blended families. QTIP trusts are often used where an individual’s children of a prior marriage are to be his or her ultimate beneficiaries, however, the decedent wants to take full advantage of the marital deduction. If you have children from a previous relationship and a current spouse, a QTIP trust lets you care for both groups without conflict. Your spouse is provided for during their lifetime, and your children receive what is left.

Second, families with significant assets. If your estate is large enough to be concerned about federal estate taxes, a QTIP trust gives you a way to defer those taxes and keep more money in your family. The federal estate tax exemption is currently set at a high level, but that can change with new legislation. Planning now protects your family from future changes in the law.

Third, people who want to maintain control over where their assets go after they die. The QTIP trust is particularly useful in situations where the decedent wishes to direct the disposition of the property after the death of the surviving spouse, and does not want the surviving spouse to have the power to change it through exercise of a power of appointment. If you have specific people or causes you want to benefit, a QTIP trust locks that in.

Fourth, spouses who want to protect assets from future creditors or a surviving spouse’s potential remarriage. Because the surviving spouse does not own the trust assets outright, those assets have some protection. The Revised Georgia Trust Code of 2010, under O.C.G.A. Title 53, Chapter 12, Article 5, addresses spendthrift and discretionary trust provisions that can add another layer of protection for trust beneficiaries.

At Slowik Estate Planning, we sit down with families in Atlanta and help them figure out whether a QTIP trust fits their goals. Every family is different. We take the time to understand your situation before recommending any strategy. Our office is located in Atlanta, Georgia, and we are here to help you build a plan that works for your family.

How QTIP Trusts Work Under Georgia Law and the Revised Georgia Trust Code

Georgia has its own set of trust laws that work alongside federal tax law. The Revised Georgia Trust Code of 2010, codified under O.C.G.A. Title 53, Chapter 12, provides the legal framework for creating and managing trusts in Georgia. A QTIP trust must comply with both the Internal Revenue Code and Georgia trust law to function properly.

Under O.C.G.A. Section 53-12-23, a trust may be created for any lawful purpose. A QTIP trust clearly meets that standard. The trust must also have a valid trustee with the capacity to serve, as outlined in O.C.G.A. Section 53-12-24. Choosing the right trustee is one of the most important decisions you will make when setting up a QTIP trust. The trustee manages the assets, distributes income to the surviving spouse, and eventually distributes the remaining assets to your named beneficiaries.

Georgia law also governs how trustees invest and manage trust assets. Under O.C.G.A. Title 53, Chapter 12, Article 16, trustees must follow the prudent investor standard. That means they must invest and manage trust assets as a careful, skilled investor would. This protects the surviving spouse’s income interest and preserves the trust assets for your ultimate beneficiaries.

The Georgia Principal and Income Act, found under O.C.G.A. Title 53, Chapter 12, Article 17, also matters for QTIP trusts. It governs how income and principal are allocated within the trust. That distinction matters because the surviving spouse is entitled to income, not principal. The trustee must follow these rules carefully to ensure the trust remains qualified under federal law.

Proper trust administration is critical after the trust is created. The trustee must keep accurate records, file required tax returns, and distribute income to the surviving spouse on time. Slowik Estate Planning can help guide trustees through these responsibilities and help families understand what to expect throughout the life of the trust. Our office in Atlanta, Georgia, is ready to assist.

Common Mistakes to Avoid With QTIP Trust Planning

QTIP trusts are powerful, but they require careful drafting and administration. Small mistakes can have big consequences. Here are some of the most common pitfalls families face, and how to avoid them.

The first and most serious mistake is failing to make the QTIP election on the estate tax return. As noted earlier, a recent U.S. Tax Court case made clear that missing this election can cost an estate millions of dollars in lost deductions. The executor must make this election on a timely filed Form 706. This is not something to leave to chance or handle without professional guidance.

The second mistake is failing to ensure the surviving spouse receives all income at least annually. The marital deduction rules require that all income must be paid to the spouse-beneficiary and that the spouse-beneficiary must be the only beneficiary who can receive benefits from the trust during that spouse’s lifetime. If the trust is drafted incorrectly or the trustee fails to distribute income on time, the trust could lose its qualified status.

The third mistake involves the surviving spouse transferring or gifting their income interest. If a spouse-beneficiary gifts or sells all or any part of the qualifying income interest in a QTIP trust, Section 2519(a) treats it as a gift of the entire value of the QTIP trust, other than the qualifying income interest, which is separately subject to gift tax. This can trigger a massive, unexpected tax bill. The surviving spouse needs to understand this rule clearly.

The fourth mistake is choosing the wrong trustee. A trustee who does not understand their duties under Georgia law can create serious problems. Article 11 of the Revised Georgia Trust Code, under O.C.G.A. Title 53, Chapter 12, sets out the duties and powers of trustees in detail. A trustee who fails to follow these rules can be held personally liable for breach of trust under Article 14 of the same code.

Slowik Estate Planning helps families in Atlanta avoid all of these mistakes. We draft QTIP trusts carefully, explain the rules to trustees and beneficiaries, and stay involved through the life of the trust. Whether you are starting your estate plan with wills and other foundational documents, or you are ready to set up a QTIP trust, we are here to help. We also assist with a wide range of other planning needs, including pet guardianships for families who want to make sure their animals are cared for as well. Contact Slowik Estate Planning in Atlanta, Georgia, today to schedule a consultation and start building a plan that protects the people you love most.

FAQs About QTIP Trust Planning in Atlanta, Georgia

What is the main difference between a QTIP trust and leaving assets directly to my spouse?

When you leave assets directly to your spouse, they own those assets outright and can do whatever they want with them, including leaving them to someone else when they pass away. A QTIP trust gives your surviving spouse income for life, but you decide who gets the remaining assets after your spouse dies. That means you can provide for your spouse and still protect your children or other beneficiaries. It is especially useful in blended families where you want to make sure your children from a prior relationship are not left out.

Does Georgia have its own estate tax that affects QTIP trust planning?

Georgia does not currently have a state-level estate tax. That means QTIP trust planning in Georgia is primarily focused on federal estate tax under the Internal Revenue Code, particularly IRC Section 2056(b)(7). However, your Georgia QTIP trust must still comply with the Revised Georgia Trust Code of 2010 under O.C.G.A. Title 53, Chapter 12, to be legally valid and properly administered in this state. Even without a state estate tax, a QTIP trust still provides significant federal tax benefits and gives you control over how your assets are distributed.

Can my surviving spouse access the principal of a QTIP trust, not just the income?

The surviving spouse is entitled to all income from the QTIP trust at least annually. Access to principal is not required for the trust to qualify under federal law, but the trust document can allow the trustee to distribute principal to the surviving spouse under certain circumstances, such as for health, education, maintenance, or support. Any such principal distribution must be carefully structured so it does not disqualify the trust from the marital deduction. Your estate planning attorney can draft the trust to balance flexibility for your spouse with protection for your ultimate beneficiaries.

What happens to the QTIP trust assets when my surviving spouse passes away?

When your surviving spouse dies, the remaining assets in the QTIP trust pass to the beneficiaries you named when you created the trust. Those assets are included in your surviving spouse’s taxable estate under IRC Section 2044, which means federal estate taxes may be owed at that time. However, the assets should also receive a step-up in income tax basis under IRC Section 1014(b)(9), which can reduce capital gains taxes when your beneficiaries eventually sell those assets. The trustee is responsible for distributing the remaining assets according to the trust terms and handling any required tax filings.

How do I get started with QTIP trust planning at Slowik Estate Planning?

Getting started is simple. Contact Slowik Estate Planning in Atlanta, Georgia, to schedule a consultation. During that meeting, we will talk about your family situation, your assets, and your goals. We will explain how a QTIP trust could fit into your overall estate plan and what other documents you may need, such as a will, powers of attorney, or other trust structures. We take a straightforward approach to estate planning and make sure you understand every step. There is no pressure and no confusing legal jargon. Just clear, honest guidance from a team that genuinely cares about protecting your family.

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