QTIP Trusts in New York: How They Work, Tax Election & Whether You Need One

Last updated: June 2024. Estate tax exemption amounts change annually for inflation; confirm current figures before relying on the numbers below.

A QTIP trust — short for Qualified Terminable Interest Property trust — lets you provide income to your surviving spouse for life while guaranteeing that the trust principal ultimately passes to beneficiaries you choose, most often children from a prior marriage. It is one of the most useful tools in New York estate planning for blended families and for married couples seeking to manage New York's estate tax exposure.

This guide explains how to create a QTIP trust under New York law, how the QTIP election is made on the estate tax return, the trustee's duties, how a QTIP compares to a credit shelter (bypass) trust, the common mistakes we see, and how to decide whether you actually need one.

If you would like to discuss a QTIP trust as part of your New York estate plan, the Law Offices of Albert Goodwin can help. Call 212-233-1233 or email [email protected].

What Is a QTIP Trust?

A QTIP trust is an irrevocable arrangement (once it becomes effective at death) that splits the benefits of property between two sets of beneficiaries across time. The surviving spouse receives all of the trust's income for life and has no power to change who ultimately inherits. After the surviving spouse dies, the remaining principal passes to the remainder beneficiaries the first spouse named — typically children from a previous marriage.

For property to qualify for QTIP treatment under federal law (Internal Revenue Code § 2056(b)(7)), three conditions must be met:

• The surviving spouse must be entitled to all the income from the property, payable at least annually, for life.
• No person (not even the spouse) may have the power to appoint the property to anyone other than the surviving spouse during the spouse's lifetime.
• The executor must make a valid QTIP election on the decedent's estate tax return.

Because the spouse's interest is a "terminable interest" that would normally not qualify for the marital deduction, the QTIP election is what allows the property to pass to the spouse's trust free of estate tax at the first death — while still letting you, not your spouse, decide who gets the principal in the end.

Why QTIP Trusts Matter for Blended Families

Consider a common New York scenario. You and your first spouse raised three children, then divorced. You later remarried someone who has children of their own. You want your new spouse to live comfortably for the rest of their life, but you want your own children — not your stepchildren — to inherit your assets in the end.

If you simply left everything to your new spouse outright, your spouse could later leave those assets to their own children, disinheriting yours. A QTIP trust solves this: your spouse receives the income (and, if you choose, can live in a residence held by the trust) for life, but the principal is locked in to pass to your children when your spouse dies.

A QTIP also interacts with New York's spousal right of election. Under EPTL § 5-1.1-A, a surviving spouse in New York is generally entitled to the greater of $50,000 or one-third of the net estate. Importantly, a QTIP trust that gives the spouse a lifetime income interest can be structured to count toward satisfying the elective share, reducing or eliminating an outright claim against the estate. This must be drafted carefully, because the rules on what "counts" toward the elective share are technical.

How to Create a QTIP Trust in New York

There are two main ways to establish a QTIP trust:

1. By Will (Testamentary QTIP)

The most common approach is to include QTIP provisions in your will. The trust springs into existence only at your death, when assets pour into it. Your executor then makes the QTIP election on the estate tax return. A testamentary QTIP gives you full flexibility to change your plan during your lifetime, since a will can be revised at any time while you have capacity.

2. By a Lifetime (Inter Vivos) Trust

A QTIP can also be funded through a living trust, with the QTIP provisions taking effect at death. This can help avoid probate for the funded assets. See our overview of the benefits of a living trust and which assets can and cannot go into a revocable trust.

Whichever vehicle you use, the trust document must satisfy the income and appointment requirements above. New York also requires that trusts comply with the formalities of EPTL § 7-1.17 (lifetime trusts in writing, signed and acknowledged or witnessed).

Making the QTIP Election on the Estate Tax Return

A QTIP is not automatic — it depends on an affirmative election by the executor:

• Federal: The election is made on Form 706, Schedule M, by listing the qualifying property and indicating that a QTIP election is being made. The election is irrevocable once the return is filed.
• New York: The corresponding election is made on Form ET-706. Critically, New York allows a separate state QTIP election even when no federal return is required, which is a powerful planning tool for estates that fall below the federal threshold but above New York's lower exclusion.

This federal-state flexibility lets an executor tailor the size of the QTIP election to minimize total estate tax across both deaths. Partial QTIP elections — electing some but not all of the qualifying property — are permitted and frequently used in sophisticated planning. See our discussion of advanced New York estate planning techniques.

QTIP Trusts and Estate Tax: How the New York Cliff Works

QTIP property qualifies for the unlimited marital deduction at the first spouse's death, so it is not taxed when the first spouse dies. Instead, the value remaining in the trust is included in the surviving spouse's taxable estate and taxed (if at all) at the second death. The tax is deferred, not eliminated.

To understand why this matters in New York, you need to understand New York's estate tax "cliff." New York does not have portability of its exclusion between spouses, and unlike the federal system, an estate that exceeds the New York basic exclusion by more than 5% loses the exclusion entirely — the whole estate becomes taxable, not just the excess.

Current thresholds (2024, subject to annual inflation adjustment):

• Federal estate tax exemption: $13.61 million per person.
• New York basic exclusion amount: $6.94 million per person.

The New York cliff hits when a taxable estate exceeds 105% of the exclusion. At a $6.94 million exclusion, that cliff is roughly $7.287 million. An estate at or below the exclusion pays no New York estate tax; an estate above 105% of it pays New York estate tax on the entire estate.

Worked example

Suppose a New York resident dies in 2024 owning a Manhattan condominium worth $1 million, a Brooklyn brownstone worth $5.5 million, and bank accounts of $1 million — a gross estate of $7.5 million, with no deductible debts.

• Without any marital planning: The $7.5 million estate exceeds 105% of the $6.94 million exclusion (about $7.287 million). Because of the cliff, the entire $7.5 million is subject to New York estate tax — the exclusion is lost completely. The result is a substantial New York estate tax bill that careful planning could have reduced or avoided.
• With a QTIP election: If, say, the $1 million condominium is placed in a QTIP trust and a QTIP election is made, that $1 million qualifies for the marital deduction and is removed from the taxable estate. The remaining taxable estate of $6.5 million is below the New York exclusion, so the cliff is avoided and no New York estate tax is due at the first death. The QTIP-elected property is then included in the surviving spouse's estate.

This illustrates the core trade-off: a QTIP defers tax to the second death and can be sized precisely to drop the estate below New York's cliff. Whether that is the best result depends on the survivor's own assets, life expectancy, and whether a credit shelter trust would do better. These figures are illustrative; tax rates are graduated and the exact tax depends on the current schedule — confirm with current Form ET-706 instructions.

QTIP Trust vs. Credit Shelter (Bypass) Trust

A credit shelter trust (also called a bypass or family trust) is funded with an amount up to the deceased spouse's available exclusion. That amount — and its future growth — escapes estate tax entirely at both deaths, because it is sheltered by the first spouse's exclusion and is not included in the survivor's estate.

In practice, many New York plans combine both: a credit shelter trust funded up to the New York exclusion to capture the first spouse's exclusion (since New York has no portability), and a QTIP for the balance to defer the rest. The QTIP-elected assets also receive a basis step-up at the second death, which a credit shelter trust does not. The right mix depends on asset values, income tax considerations, and the family situation.

Choosing a Trustee and Understanding Trustee Duties

The trustee administers the QTIP after your death, so the choice is consequential — especially because the trustee must balance the interests of the income beneficiary (your spouse) against those of the remainder beneficiaries (your children). Common choices include a trusted individual, a corporate trustee, or a combination. See our discussion of using a bank as a trustee and how a trust attorney in NYC can help structure the role.

A New York trustee owes fiduciary duties under EPTL Article 11 and the Prudent Investor Act (EPTL § 11-2.3), including the duties of loyalty, impartiality between beneficiaries, prudent investment, and accounting. Because a QTIP forces the trustee to serve two groups with conflicting interests — the spouse wants high income, the children want principal preserved and growing — the duty of impartiality is central. The trust instrument can guide how the trustee should weigh these interests. Beneficiaries have rights to information; see beneficiaries' rights to trust information.

Is a QTIP Trust Revocable or Irrevocable?

While you are alive, you can change or revoke the plan that creates the QTIP — a will can be rewritten, and a revocable living trust can be amended. Once you die and the QTIP becomes funded and the election is made, the trust is irrevocable. Neither the surviving spouse nor anyone else can redirect the remainder away from the beneficiaries you named. That permanence is precisely what makes the QTIP effective for blended families.

Common QTIP Mistakes to Avoid

• Failing to make the election (or making it late). Without a timely QTIP election on Form 706 or ET-706, the marital deduction may be lost.
• Restricting income. If the spouse is not entitled to all the income at least annually, the trust fails to qualify under IRC § 2056(b)(7).
• Ignoring New York's lack of portability and the cliff. A plan that works federally can still trigger a large New York tax. Pair the QTIP with a credit shelter trust where appropriate.
• Naming the wrong trustee. An income beneficiary serving as sole trustee can create conflict and tax problems.
• Overlooking the elective share interplay. A QTIP must be coordinated with EPTL § 5-1.1-A so the spouse does not unexpectedly claim more.
• Forgetting the second-death tax. Heirs are sometimes surprised that the QTIP value is taxed in the survivor's estate. Plan for liquidity.

Do You Need a QTIP Trust?

A QTIP is worth serious consideration if any of the following apply:

• You are in a blended family and want to provide for your current spouse while protecting children from a prior relationship.
• Your combined estate is near or above the New York basic exclusion (currently $6.94 million) and you want to manage the New York estate tax cliff.
• You want to control the remainder of your estate rather than leaving everything to your spouse outright.
• You want flexibility for your executor to size the marital deduction after you die based on then-current law.

If your estate is modest and your family situation is simple, a QTIP may be unnecessary. The decision is fact-specific and should be made with an attorney who can model the New York and federal tax outcomes for your particular assets.

Frequently Asked Questions

Can a QTIP trust be changed after the first spouse dies?

Generally no. Once funded and the election is made, the QTIP is irrevocable, and the remainder beneficiaries cannot be changed. Limited modifications may be possible through court proceedings or decanting under EPTL § 10-6.6, but the spouse cannot redirect the principal.

Who pays the estate tax when the surviving spouse dies?

The value remaining in the QTIP is included in the surviving spouse's taxable estate. Under IRC § 2207A, the survivor's estate can generally recover the additional estate tax attributable to the QTIP property from the QTIP trust itself, unless the will directs otherwise.

How is a QTIP different from a credit shelter trust?

A credit shelter trust uses the first spouse's exclusion so the assets bypass the survivor's estate and avoid tax at both deaths. A QTIP defers tax to the second death using the marital deduction and provides a basis step-up. Many plans use both.

Can the surviving spouse use the trust principal?

The spouse must receive all income. Access to principal is optional and depends on the trust terms — you can allow distributions for health, support, or maintenance, or limit access entirely to preserve the remainder for your children.

Does a QTIP avoid probate?

A QTIP created in a will does not avoid probate, because the will must be probated first. A QTIP funded through a revocable living trust during life can avoid probate for those assets.

Are QTIP trusts part of the public record?

A testamentary QTIP is contained in a will, which becomes public when filed for probate. A QTIP within a living trust is generally private. See are trusts public record.

Speak With a New York QTIP Trust Attorney

QTIP trusts are powerful but technical. The election mechanics, New York's estate tax cliff, the lack of state portability, and the elective share rules all require careful coordination. At the Law Offices of Albert Goodwin, we help New York families design QTIP trusts that protect both a surviving spouse and the children you intend to inherit, with offices in New York City, Brooklyn, and Queens. Call 212-233-1233 or email [email protected].

About the Author

Albert Goodwin, Esq. is a New York estate planning and probate attorney and the founder of the Law Offices of Albert Goodwin. He holds law degrees and is admitted to practice in New York. His practice focuses on wills, trusts, estate administration, and contested estate matters in New York's Surrogate's Courts. Learn more about Albert Goodwin.

Authoritative References

• Internal Revenue Code § 2056(b)(7) — Qualified terminable interest property
• Internal Revenue Code § 2207A — Right of recovery of estate tax
• New York EPTL § 5-1.1-A — Right of election by surviving spouse
• New York EPTL § 11-2.3 — Prudent Investor Act
• New York Tax Law Article 26 — Estate tax (basic exclusion and the cliff)
• IRS Form 706 and NYS Form ET-706 instructions (confirm current-year figures)

This article is for general information only and is not legal or tax advice. Tax thresholds and rates change; consult a qualified New York attorney about your specific situation.