A marital deduction trust allows is a financial vehicle to facilitate the transfer of property from husband to wife or wife to husband and are designed to take advantage of the federal estate tax deduction available to it. There are two variations on the basic marital deduction trust. One type is called a qualified terminable interest property (or QTIP trust). This type of trust a special form of property ownership that qualifies for the marital tax deduction. Although the surviving spouse does not have an absolute right to the trust’s assets, he or she does have a right to receive income from the trust’s assets and the power to specify to whom the assets of the trust will pass. Another type of marital deduction trust is a qualified domestic trust (QDT). This form of trust is established when a surviving spouse is not a U.S. citizen and is designed to allow the assets in the trust to qualify for the marital deduction.
The marital deduction is allowed for property given to a QTIP trust for the benefit the decedent’s surviving spouse if: (1) the surviving spouse has a lifetime right to all of the trust’s income, which must be payable to the surviving spouse at least annually; (2) during the surviving spouse’s life, no one may to transfer any part of the property to any person other than to the surviving spouse; (3) the surviving spouse is the sole lifetime beneficiary of the trust; and (4) the decedent’s executor makes an election to treat all or a specific portion of the trust property as qualified terminable interest property.