Estate planning requires the careful balancing of family priorities with tax and asset protection concerns, and the tools available to practitioners to address these priorities and concerns change over time amid legislative reforms and judicial determinations. Among the tools available to practitioners, the inter vivos Qualified Terminable Interest Property trust, aka the inter vivos “QTIP” trust, provides unique opportunities for both tax and asset protection planning. While estate and gift tax planning will be of less concern to many taxpayers following the recently increased permanent exemption of fifteen million dollars under the One Big Beautiful Bill (“OBBB”)[1], inter vivos QTIPs remain an excellent option to consider for asset protection purposes irrespective of tax planning.
I recently authored an article on Mississippi domestic asset protection trusts,[2] or DAPTs, which provide protection against transferred assets being subject to the claims of the trust grantor’s creditors, provided that certain statutory requirements are met (as set forth in detail in my prior article). These requirements notably include a general two-year holding period[3] before such assets are shielded from the claims of the grantor’s creditors.[4] Conversely, inter vivos QTIPs are not subject to this two-year holding requirement, generally providing creditor protection upon transfer[5], which may make an inter vivos QTIP the more effective and appropriate vehicle for asset protection in some, if not many, circumstances.
QTIP Trusts, Generally
As its name implies, and unlike a testamentary QTIP trust, an inter vivos QTIP trust is established during the lifetime of the trust grantor. This critical distinction allows for both immediate asset protection benefits and long-term control over the disposition of wealth. The essential design of an inter vivos QTIP trust is straightforward. The grantor transfers assets into an irrevocable trust and ensures that the spouse receives income for life. The grantor, however, retains the ability to determine who receives the remainder of the assets after the surviving spouse passes away. Because the transfer can qualify for the federal gift tax marital deduction if the QTIP election is made and QTIP requirements are satisfied[6], the initial transfer does not result in the use of lifetime exemption or an immediate gift tax liability[7] where no remaining exemption is available. Instead, the estate tax, if any, is deferred until the death of the surviving spouse, at which point the trust assets are included in the surviving spouse’s estate and go against his or her available estate tax exemption, including any deceased spouse’s unused exemption, or “DSUE,” if applicable[8].
The design of an inter vivos QTIP trust also lends itself to flexibility in addressing personal family dynamics and can prove especially useful in blended family situations, where there may be a need to provide income for a spouse but also to preserve principal for children of a prior marriage. The income requirement for the spouse is mandatory in order to qualify for the marital deduction, but the trust can be drafted to address contingencies such as divorce or remarriage. Grantors may also provide for successor trustees or include language that accounts for changes in family circumstances without undermining the core structure. In this sense, the inter vivos QTIP trust is not merely a tax-planning tool but also a vehicle for expressing the grantor’s long-term intentions with a high degree of clarity.
Asset Protection
One of the strongest arguments for the inter vivos QTIP trust is that it provides immediate protection from the grantor’s creditors upon transfer[9], and dependent on state law, if the beneficiary spouse predeceases the grantor spouse, could (provided that it is properly drafted) make distributions to or for the grantor spouse’s benefit while continuing to provide a layer of asset protection for the grantor spouse, avoiding “self-settled” status that would typically be detrimental for asset protection purposes. This continued asset protection provided to the grantor spouse (following the death of the original beneficiary spouse) relies on state statute and may not be available in all states. Luckily, Mississippi is one of a handful of states that provide asset protection against a secondary QTIP interest in a inter vivos QTIP trust.[10]
Specifically, Miss. Code Ann. § 91-8-504(d) provides that property contributed to an inter vivos QTIP trust is not considered to have been contributed by the grantor, and a person who would have otherwise be treated as grantor or deemed grantor of the trust may not be treated as the grantor if (i) such grantor is a beneficiary of the trust following the death of the grantor’s spouse[11], and (ii) the trust is treated as a QTIP under Internal Revenue Code § 2523(f)[12]. The same statute further provides that the effect of the foregoing shall be that the power of the trustee to make a distribution to or for the benefit of, or to otherwise permit the grantor to use or benefit from the trust property following the original beneficiary spouse’s death, shall not be considered an amount that may be distributed to or for the grantor’s benefit under Miss. Code Ann. § 91-8-504(a)(2).
- 91-8-504(a)(2) provides that a creditor of a grantor of an irrevocable trust may reach the maximum amount that can be distributed to or for the grantor’s benefit. As such, by § 91-8-504(d) excluding the distributions made to or for the settlor’s benefit (following the death of the original beneficiary spouse) from an inter vivos QTIP from the definition of the same included in paragraph (a)(2), assets transferred by the grantor to an inter vivos QTIP receive protection from creditors immediately and continues until the later of the grantor or grantor spouse’s death (and most likely even after, assuming such assets remain in trust.)
Tax Implications and Flexibility
Because the original beneficiary spouse’s death triggers estate inclusion of the trust assets, beneficiaries often enjoy a full step-up[13] in income tax basis. This adjustment can substantially reduce capital gains exposure when the assets are later sold. Such tax efficiency adds another layer of protection for family wealth and ensures that future generations are not unduly burdened by hidden tax costs. Further, an inter vivos QTIP trust offers a distinct “wait-and-see” opportunity because the QTIP election need not be made until the due date of the gift tax return for the year in which the transfer is made. If an extension is filed, that deadline can be pushed as far as October 15 of the following year. This extra time allows planners and their clients to evaluate the evolving tax landscape. If Congress reduces the lifetime exemption amount, or if new regulations create unexpected consequences, the election can be adjusted accordingly. In periods of political and fiscal uncertainty, this flexibility can provide tremendous value.
Conclusion
Inter vivos QTIP trusts stand out as a uniquely effective strategy when compared to other common techniques. They allow the grantor to provide for a spouse without exposing assets to the vulnerabilities inherent in self-settled structures, and unlike a DAPT, they are not subject to a two-year holding period, instead providing immediate protection from creditors while permitting distributions to or for the benefit of the grantor’s spouse.
With regard to estate tax planning, prior to the enactment of the OBBB, taxpayers were incentivized to “use or lose” their basic exclusion amount,[14] as the same was formerly expected to sunset in January of 2026. Now, following the enactment of the OBBB, basic exclusion amounts are permanently increased to fifteen million dollars per taxpayer, and much planning focus has thus shifted to prioritize basis adjustment under IRC § 1014. The urgency to gift (in contemplation of the no-longer-in-effect sunset of exemption amount) now subsided, inter vivos QTIP trusts provide an excellent avenue to protect assets, receive a basis adjustment to fair market value at death, and to remain flexible in consideration of any future changes to the transfer tax regime. Notwithstanding, the asset protection benefits of an inter vivos QTIP trust, coupled with certain retained control over trust assets, extend to all taxpayers, irrespective of whether they have a taxable estate.
In conclusion, the inter vivos QTIP trust has emerged as an invaluable tool in modern estate planning. It blends statutory strength with tax efficiency and offers flexibility at a time when certainty is elusive. For families facing complex dynamics, and for planners navigating the shifting terrain of tax law, it provides a thoughtful balance between present security and future control. As Congress makes legislative changes and as courts refine doctrines on asset protection, the inter vivos QTIP trust is likely to remain a cornerstone of sophisticated estate planning strategies.
[1] See my prior article on QSBS benefits under the OBBB here: https://esapllc.com/too-large-to-overlook-the-increased-benefits-of-qsbs-after-the-one-big-beautiful-bill-2025/
[2] See such article here: https://esapllc.com/mississippi-dapt-asset-protection-method-2025/
[3] Note that the use of an inter vivos QTIP does not shorten the general three-year statute of limitations related to fraudulent transfers as found in Miss. Code Ann. § 15-3-115. Conversely, Miss. Code Ann. § 91-9-707 shortens such period to two years regarding qualified disposition to a Mississippi DAPT.
[4] Miss. Code Ann. § 91-9-707(b)(1).
[5] Subject to the Uniform Fraudulent Transfer Act (Miss. Code Ann. § 15-3-101 et. seq.) and 11 USC § 548 in bankruptcy.
[6] As generally provided in IRC § 2056(b)(7), “qualified terminable interest property” is property that passes from a decedent to the surviving spouse in which the surviving spouse has a qualifying income interest for life and to which the proper QTIP election is made.
[7] As opposed to Spousal Lifetime Access Trusts, or SLATs, which require consumption of exemption and the necessity to obtain appraisals associated therewith.
[8] https://esapllc.com/rowland-dsue-case-2025/
[9] As stated previously, subject to the Uniform Fraudulent Transfer Act (Miss. Code Ann. § 15-3-101 et. seq.) and 11 USC § 548 in bankruptcy.
[10] Miss. Code Ann. § 91-8-504(d).
[11] Miss. Code Ann. § 91-8-504(d)(1)(A).
[12] Miss. Code Ann. § 91-8-504(d)(1)(B)(i).
[13] Or step-down, as IRC § 1014 provides for an adjustment of basis to fair market value, regardless if the fair market value is less than basis, potentially (in somewhat rare circumstances) resulting in a step-down in basis.
[14] See IRC § 2010(c)(5).
