Estate planning is a critical step in ensuring your loved ones are cared for and your assets are distributed according to your wishes. While estate plans can take many forms, a marital trust may be effective for some couples. Marital trusts can offer both financial security for a surviving spouse and the potential to minimize estate taxes, making them a popular strategy for families looking to protect their wealth across generations.
Today in this space, we’ll break down what a marital trust is, how it works, the different types available, and the scenarios in which it may be the right option for you.
1. What Is a Marital Trust?
A marital trust is a legal arrangement designed to hold and manage assets for the benefit of a surviving spouse after one spouse passes away. Sometimes referred to as an “A trust” or a “spousal trust,” its primary purpose is twofold:
- To provide ongoing financial support for the surviving spouse.
- To reduce or defer estate taxes, preserving more wealth for future heirs.
By placing assets in a marital trust, couples can ensure their surviving spouse has access to income and, in some cases, principal, while still maintaining control over how the remaining assets are distributed once both spouses have passed.
2. How Does a Marital Trust Work?
Marital trusts typically include three key roles:
- Grantor
The spouse who creates and funds the trust.
- Trustee
The individual or institution responsible for managing the trust’s assets.
- Beneficiary
The surviving spouse who receives income from the trust, and possibly limited access to the principal.
After the grantor’s death, assets are transferred into the trust. The surviving spouse usually receives all income generated by the trust during their lifetime. Depending on how the trust is drafted, they may also have access to the principal. Once the surviving spouse passes, the remaining assets in the trust are distributed to the final beneficiaries—often children or other family members—as specified in the trust agreement.
3. Types of Marital Trusts
There are three types of marital trusts, each serving different estate planning goals:
QTIP Trust (Qualified Terminable Interest Property Trust)
QTIP Trusts allow the grantor to provide income to a surviving spouse while retaining control over the final distribution of assets. These are particularly helpful in blended families to ensure that the children from a previous marriage eventually inherit the remaining assets.
AB Trust (Credit Shelter Trust/Marital Trust Combo)
The innovative AB Trust blends the considerable benefits of two different kinds of trusts: Credit Shelter and Marital. The AB Trust works by splitting the estate into two parts upon the first spouse’s death. One part (Trust A) qualifies for the marital deduction, and the other part (Trust B) uses the deceased spouse’s estate tax exemption. In this manner, the AB Trust helps maximize estate tax exemptions for both spouses.
4. Tax Benefits of a Marital Trust
A key advantage of marital trusts is the marital deduction. Under U.S. tax law, assets passed to a surviving spouse (who is a U.S. citizen) are not subject to federal estate tax. This allows married couples to defer estate taxes until the death of the second spouse. Additionally, structures like the AB Trust allow couples to use both spouses’ estate tax exemptions, potentially protecting millions of dollars from taxation.
5. When Should You Consider a Marital Trust?
Marital trusts are especially beneficial in the following situations:
- High-net-worth individuals
To minimize estate taxes and protect and preserve substantial assets. - Blended families
To balance financial support for a surviving spouse with inheritance rights of children from prior relationships. - Asset protection and control
To ensure that assets are used according to your wishes and not vulnerable to future risks like remarriage, creditors, or mismanagement.
A Trust Company You Can Trust
Marital trusts are powerful estate planning tools. They offer financial security for your spouse, reduce or defer estate taxes, and—maybe most importantly—ensure your long-term wishes are honored. Because trust and tax laws are complex and ever-changing, it’s essential to utilize an experienced trust company to administer your marital trust.
At The Family Heritage Trust Company, we can guide you through every step of the trust administration process with clarity, compassion, and personalized service. Contact us today to learn more about how we can help you secure—and define—your legacy.