The Qualified Plan QTIP Formula essentially funds the QTIP Trust in reverse of the method normally used with the pecuniary credit shelter formula; that is, it (the QTIP) is funded with the maximum amount of assets (qualified plan assets first) so as to cause a minimum of transfer tax liability of the decedent’s estate by the use of the unified credit. This “reverse funding” method allows the trustee to fund the QTIP Trust with qualified plan assets.

The formula and accompanying language will eventually spin off the greater of (i) all distributable net income or (ii) the amounts required under the minimum distribution rules to the surviving spouse. It is a requirement that all net income from the QTIP Trust be distributed to the surviving spouse on an annual or more frequent basis for it to qualify as a marital deduction trust under the rules of IRC section 2056(b)(7).

The section 2056 income distribution requirements run somewhat parallel with the minimum distributions rules of qualified plans under IRC Section 401. Moreover, funding the QTIP, rather than the Credit Shelter Trust, with the qualified plan assets can avoid certain taxation pitfalls that would otherwise apply to certain minimum distribution rules instigated by the qualified plan asset transfers to a credit shelter trust.