G—Credit Shelter Trust and QTIP Trust
The unlimited estate tax marital deduction is critical to estate planning. But a decedent spouse's interest is not eligible for the deduction if it is terminable (for example, if it terminates upon the death of the surviving spouse) unless it falls under certain exceptions. Perhaps the most important of these is qualified terminable interest property, known by its acronym, QTIP.
In this scenario, the will (or revocable trust) of the first spouse to die gives the surviving spouse the right to all the income for life from the assets held in the QTIP trust. The QTIP trust can also include distributions of principal to the surviving spouse, but to no one else. Upon the death of the surviving spouse, the assets are distributed as determined by the first spouse to die.