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QTIP Trust

Qualified terminable interest property (QTIP) trusts are often included in living trusts, especially by people (trustors) who are remarried and have children by a former marriage.  They allow a trustor to avoid estate taxes, provide for a current spouse after death and make sure assets ultimately go to their children from a former marriage.  They may be revoked (cancelled) at any time prior to death.  

Upon death, some or all of the trustor's assets in the living trust are transferred into the QTIP trust.  Since the current spouse will have a life interest in the QTIP trust assets, they qualify for the marital deduction and no estate tax will be owed upon death.  During the current spouse's life, he or she will receive all of the income generated by the trust assets.  When the current spouse passes, the remaining assets go to the children of the trustor's former marriage or anybody else chosen by the trustor when the QTIP trust is created. 

If the trustor simply gave his or her current spouse the assets outright without putting them in a QTIP trust, the current spouse could exclude the children of the former marriage and give them to whomever he or she chooses.