Marital Trust Strategies.

QTIP Trusts (Qualified Terminable Interest Property)

Protect Your Spouse for Life, Preserve Your Children’s Inheritance, and Control Estate Taxes—All in a Single, Flexible Structure.

More than just a piece of Cotton...

How a QTIP Trust works in New Jersey, when to use it, how it interfaces with portability (DSUE), credit shelter planning, second marriages, and NJ inheritance tax.

Estate planning gets hard when love and money pull in different directions. You want your spouse secure for life. You also want your children (often from a prior relationship) to receive what you built—without a new spouse or future creditors rewriting your legacy. A QTIP Trust—short for Qualified Terminable Interest Property—is the elegant answer. Properly designed, it gives your surviving spouse an income (and often principal access under HEMS standards—Health, Education, Maintenance, and Support) while locking in who ultimately inherits the remainder. It also lets the executor make a “QTIP election” on the federal Form 706 (Estate Tax Return) to control when property is taxed, coordinate with portability (the DSUE—Deceased Spousal Unused Exclusion—amount), and reduce overall estate tax across both estates.

In New Jersey families—especially blended families, owners of appreciated real estate (shore homes, rentals), and those with sizeable retirement and brokerage accounts—QTIP planning is often the backbone of the Advanced Plan: spouse-first security, children-protected remainder, and tax timing you can dial in at the survivor’s death instead of being locked into a one-size-fits-all decision today.

What A QTIP Trust actually Does

  • Spouse Benefits Now: Your surviving spouse receives all trust income for life. We typically add limited principal access under HEMS or a distribution standard tailored to your family.

  • You Control The Finish Line: On your spouse’s later death, your chosen remainder beneficiaries (usually your kids) receive what’s left—not a new spouse, not step-grandkids, and not creditors.

  • Tax Control With An Election: Your executor decides on the QTIP election at your death. Electing QTIP defers federal estate tax on the elected assets until your spouse passes, at which time those assets are included in the survivor’s estate.

  • Portability + Credits: We coordinate the QTIP election with portability (DSUE) and, when appropriate, a Credit Shelter Trust (CST) so you don’t waste the first spouse’s exemption.

  • Investment & Oversight: Trustees invest prudently, balance income and growth, and can use unitrust or power-to-adjust techniques so the spouse is treated fairly without compromising long-term goals.

Why QTIP Is So Popular In NJ

  1. Blended Families: Guarantees your spouse is cared for without disinheriting your children.

  2. Shore & Rental Properties: Keeps homes in the family line while allowing a spouse to use, rent, or sell under trustee guidance.

  3. Creditor & Remarriage Risks: Spousal support with spendthrift protection; remainder is insulated from a later remarriage or claims.

  4. Tax Timing Flexibility: Election is made after death, when we know values and laws; we can split assets among CST, QTIP, and “non-elected QTIP” for precision.

  5. Privacy & Control: Paired with a Revocable Living Trust (RLT) and proper funding, your estate can avoid or minimize probate’s public, creditor-first process.

QTIP vs. Credit Shelter vs. Portability (How They Fit)

  • Credit Shelter Trust (CST) shelters up to the first spouse’s federal exemption; growth escapes estate tax at the survivor’s death.

  • QTIP Trust defers tax but pulls elected assets into the survivor’s estate later; this lets us compare brackets, exemptions, and charitable plans across two deaths.

  • Portability (DSUE) transfers the unused federal exemption of the first spouse to the survivor—but it does not shelter post-death appreciation the way a CST can.

  • The winning New Jersey approach for many estates is a hybrid: fund CST to the target amount, fund QTIP for spouse-security and remainder control, and preserve DSUE with a timely 706 filing—even if no tax is due.

NJ-Specific Considerations

  • Probate Reality: NJ probate is public and, once you add executor commissions, legal/accounting fees, bond/appraisals, and time, the administrative drag is commonly 3–7% of the estate. We design and fund your plan to keep your spouse out of that machine.

  • New Jersey Inheritance Tax: While Class A beneficiaries (spouse/lineal descendants) are exempt, non-Class-A (e.g., siblings, nieces/nephews, non-relatives) can trigger NJ inheritance tax. QTIP remainder design and beneficiary classes matter.

  • Real Estate: We often deed NJ homes—including shore properties—into your RLT with appropriate use rights for the spouse and planned remainder to your children, or we place the property inside the QTIP or CST for tax and control.

Common Mistakes We Prevent

  • Failing To File Form 706 to secure DSUE even when no tax is due.

  • All-Or-Nothing Elections: Electing too much or too little QTIP without modeling survivor’s estate, IRAs, and charitable intents.

  • Conduit-Only Language After SECURE Act: Improper retirement trust terms that force 10-year taxable distributions; we use SRT (Stand-Alone Retirement Trust) or accumulation trust provisions where appropriate.

  • Unfunded Trusts: Great binder, failed plan. We quarterback funding—deeds, titles, and beneficiary changes—then maintain confirmations in your secure vault.

  • Trustee Conflicts & Training Gaps: We select the right fiduciaries and provide Trustee Training through our AMP (Annual Maintenance Program) and CCP (Continuing Counsel Plan).

How We Design Your QTIP (Our Process)

  1. Design & Discovery Meeting (DDM): People map, assets, tax modeling, and “what-ifs.”

  2. Drafting: RLT, CST, QTIP, pour-over Will, DPOA (Durable Power Of Attorney), AD (Advance Directive/Healthcare Proxy), HIPAA (Health Insurance Portability and Accountability Act) Authorization.

  3. Review & Signing: Plain-English review plus professional cross-check.

  4. Funding: We do the work—Bargain & Sale Deeds, account retitling, POD/TOD and beneficiary changes, life insurance alignment.

  5. Maintenance: Annual tune-ups (AMP) or quarterly private-client stewardship (CCP), with trustee refreshers and beneficiary audits.

For Professionals (A Deeper Dive)

  • Election Mechanics: QTIP requires all income payable at least annually to the spouse; no one else may have power to appoint during spouse’s life; timely 706 with Schedule M election is mandatory. Partial elections and “reverse QTIP” (IRC §2652(a)(3)) may be used for GST planning.

  • Clayton Flexibility: Pair with a Clayton election to pivot between CST and QTIP status based on post-mortem values and goals.

  • Basis vs. Estate Inclusion: Electing QTIP may secure a second step-up in basis at survivor’s death; CST assets generally do not re-step. We model basis outcomes alongside estate tax.

  • QSST/ESBT & S-Corp Stock: Hold S-corp shares through compliant QSST (Qualified Subchapter S Trust) or ESBT (Electing Small Business Trust) features; avoid accidental ineligibility.

  • Non-Citizen Spouse: QTIP does not qualify for marital deduction if the surviving spouse is not a U.S. citizen; use QDOT (Qualified Domestic Trust) or secure citizenship.

  • IRA Coordination: Use separate SRT or accumulation provisions; beware conduit traps after the SECURE Act and proposed regs.

FAQs

Q: Can my spouse be the trustee?
A: Often yes, with co-trustee or independent trustee for principal distributions to manage conflicts and maintain tax compliance.

Q: Will my spouse be “cut off”?
A: No. Your spouse receives all income and typically principal under HEMS. The guardrails prevent misuse or diversion outside your family line.

Q: Do we still need portability if we use a CST and QTIP?
A: Yes—belt and suspenders. Portability preserves DSUE; CST shelters growth; QTIP adds timing and remainder control.

Q: What about our IRAs and 401(k)s?
A: We often use an SRT with accumulation provisions to coordinate 10-year rules, tax brackets, and protection for beneficiaries.

Q: How is this different from a simple Will?
A: A Will alone sends your spouse through probate and gives them outright ownership—no control, no protection, no tax timing. QTIP adds all three.

Book A Strategy Call

Book a Strategy Call to see exactly how a QTIP-based design would work for your family and assets. We’ll model taxes, survivor cash flow, remainder outcomes for children, and deed/beneficiary changes—then we’ll implement, fund, and maintain it.SCHEDULE A CONSULTATION