QTIP Trust Definition: How It Works for CA and WA Families

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

A QTIP trust (qualified terminable interest property trust) is a trust that pays all of its income to a surviving spouse for life, at least once a year, and then passes what is left to people the first spouse chose, usually the children. Because the executor elects QTIP treatment on the federal estate tax return, the property qualifies for the marital deduction, so no estate tax is due at the first death. It is taxed instead in the surviving spouse’s estate.

In plain terms: your spouse is supported, your children are protected as the final beneficiaries, and the estate tax is deferred to the second death. The rules come from Internal Revenue Code §2056(b)(7).

The four rules a QTIP trust has to meet

A trust only counts as QTIP property if it follows the statute and the Treasury regulations:

1. All income goes to the surviving spouse, paid annually or more often, for life.
2. No one can direct principal to anyone else while the spouse is alive. The trustee may be allowed to pay principal to the spouse, but not to the kids during the spouse’s lifetime.
3. The executor makes the election on the federal estate tax return (Form 706). Once made, the election is irrevocable.
4. The spouse generally must be a US citizen. This is a marital deduction rule rather than a QTIP rule. If the spouse is not a citizen, the deduction generally requires a qualified domestic trust (QDOT) instead, under §2056(d).

At the surviving spouse’s death, whatever is left in the trust is included in the spouse’s taxable estate under §2044, then passes to the remainder beneficiaries the first spouse named. The surviving spouse cannot change who those are.

Why a California or Washington family with young kids would use one

For 2026 the federal basic exclusion is $15,000,000 per person (IRS), so most families earning $750,000 to $3 million will not owe federal estate tax at all. The reasons to use a QTIP trust are usually something else.

Control over where the money ends up

If one of you dies at 45 with children aged 4 and 8, the survivor may live another 40 years, and may remarry. Assets left outright can end up with a new spouse or a new spouse’s children. A QTIP trust supports your spouse fully, but the remainder is locked to the children you share. This is why it is common in second marriages and blended families, and why it still matters in a first marriage with young kids.

Washington’s estate tax

Washington has its own estate tax with a much lower exclusion: $3,076,000 for deaths from January 1 to June 30, 2026 and $3,000,000 for deaths from July 1 to December 31, 2026, with rates starting at 10% (WA DOR). Washington’s exclusion is set per person by statute (RCW 83.100.020), and Washington law has no portability provision like the federal one for a deceased spouse’s unused exclusion, so a couple that leaves everything outright to each other can waste the first spouse’s Washington exclusion. Washington also lets the personal representative make a QTIP election on the Washington return that is larger or smaller than the federal one, “to reduce Washington estate liability while making full use of the federal unified credit” (WAC 458-57-115).

California has no estate tax

California has not required a state estate tax return for deaths on or after January 1, 2005 (State Controller). For a California family below the federal exclusion, the QTIP decision is about control, remarriage protection and income tax basis, not estate tax.

Community property changes the math in both states

California and Washington are both community property states. Most of what a married couple earns during the marriage, including salary, RSUs that vested during the marriage and 401(k) contributions, is generally owned half by each spouse. At the first death, the person who died controls only their half of the community property, plus any separate property. That half is what can go into a QTIP trust.

There is also an income tax benefit. Under §1014(b)(6), both halves of community property can get a new cost basis at the first death. Assets in a QTIP trust are included in the survivor’s estate, so they can get a second step-up at the second death. Assets in a bypass (credit shelter) trust are not included, so they generally do not. Retirement accounts such as 401(k)s are the exception: they are income in respect of a decedent and do not get a step-up at either death (§1014(c)). For a family whose wealth is mostly low-basis company stock, that difference can be large.

Worked example: a Bellevue family, before and after

Assumptions (illustrative, 2026 figures, no growth): a married couple in Bellevue, Washington. One spouse is an Amazon director, the other a physician. Household income is $1.4 million. Children are 4 and 8. All assets are community property, $9 million in total: a $3 million home, $4 million in brokerage accounts and vested RSU shares, $1.5 million in 401(k)s and $500,000 in cash. One spouse dies in late 2026, when the Washington exclusion is $3,000,000. For simplicity the example assumes the same $3 million exclusion at the second death; the actual figure is adjusted for inflation each year after 2026.

Plan B shelters $3 million more from Washington estate tax at the second death. At the 10% bottom rate alone that is at least $300,000 of tax, and more at higher brackets. One practical wrinkle: a 401(k) passes by beneficiary form, and federal law generally requires the spouse to be the beneficiary unless they waive in writing, so the decedent’s $750,000 share of the 401(k)s would usually go to the survivor outright and the QTIP share would be funded with other assets. The survivor’s total at the second death is still $6 million. The tradeoff is basis: the $3 million in the bypass trust does not get a second step-up when the survivor dies, while the QTIP portion does. Many Washington plans therefore put everything into one QTIP-eligible trust and let the executor decide, after the death, how much to elect on the Washington return. That decision is made with real numbers instead of guesses.

For the same family in Palo Alto, there is no state estate tax and the $9 million estate is well under the $15 million federal exclusion. A QTIP trust would still give remarriage protection and a second step-up, and the executor would typically file Form 706 anyway to elect portability, which the IRS says requires a timely filed return even when no tax is owed (IRS FAQ).

Is a QTIP trust irrevocable?

Usually, yes, once it takes effect. Most QTIP trusts are written into a revocable living trust or a will, so you can change the terms while you are both alive. At the first death, the QTIP share becomes irrevocable, and the executor’s QTIP election is irrevocable too. A lifetime QTIP trust, funded as a gift to a spouse, is irrevocable from the start.

Decisions to make with your attorney

• Trustee. Your spouse alone, your spouse with a co-trustee, or an independent trustee. A sole spouse-trustee is simple. An independent co-trustee adds protection if remarriage is a real concern.
• Principal for the spouse. Whether the trustee can pay principal for health, education, maintenance and support, or more broadly.
• Concentrated stock. Many tech and biotech families hold shares that pay little or no dividend. The regulations require that the spouse can make the trustee turn unproductive property into income-producing property within a reasonable time (Treas. Reg. §20.2056(b)-5(f)(4)). Plan for that before the trust is holding $4 million of one stock.
• What happens for the kids. At the survivor’s death, minor children cannot receive money outright. Name a trustee and an age or schedule for distributions in the same document.
• Beneficiary designations. Retirement accounts and brokerage accounts pass by beneficiary form, not by your will. See how to name a trust as beneficiary of a brokerage account.

Common mistakes

• Assuming the federal exclusion means no planning is needed, while living in Washington.
• Forgetting that the QTIP election must be made on Form 706. No return, no election.
• Calling a trust “QTIP” but giving the trustee power to pay the kids during the spouse’s life. That disqualifies it.
• Naming an executor who has never seen the plan. Read who can serve as executor before choosing.
• Missing the citizenship rule when one spouse holds a green card.

What to write down for your children

A QTIP trust decides who gets the money. It says nothing about why. Write a one-page memo that sits with the trust: why you chose a trust over leaving it outright, what you hope the money pays for, and how you want the trustee to think about requests. Your children will read the trust document at 25 or 30. The memo is the part that tells them what you were thinking. As Kevin puts it, “Conversations fade. Documentation compounds.”

Next step

Pull your current will or trust and check two things: whether it leaves everything outright to your spouse, and whether your executor knows a Form 706 is needed. Our estate planning and family governance work at Age Five Family Office™ covers both, alongside your estate attorney. You can also bring these questions for your attorney to the next meeting.

This is general education, not legal or tax advice. The right structure depends on your family’s full picture and should be drafted by an estate planning attorney licensed in your state.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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