What is a Marital Trust?
A marital trust is often used in estate planning by married couples as a strategy to hold the amount of assets necessary to ensure that no estate tax is due upon the death of the first spouse. The idea is that the surviving spouse retains financial security going forward.
A marital trust is usually established through a will or revocable living trust. It remains revocable until the death of the first spouse, at which point it becomes irrevocable. From there, the surviving spouse remains the sole beneficiary as long as they live—all income generated by the trust is theirs. Following the death of the second spouse, any assets that remain are distributed in accordance with the wishes of the original grantor. This generally ends up being children or heirs, but that isn’t a requirement.
There are two main types:
- QTIP Trust (Qualified Terminable Interest Property): This grants income to the surviving spouse during their lifetime, after which distribution is determined by a will.
- General Power of Appointment Trust: This gives the surviving spouse more control, which includes the ability to redirect the assets as they see fit.
Who should use a Marital Trust?
A marital trust can be utilized in a wide range of estate planning scenarios, but most commonly it’s applied to the following: If a married couple’s estate exceeds the federal estate tax exemption, they might consider using the unlimited estate tax marital deduction to reduce their estate to within the excludable limits. The remainder would fund a family trust (also called a credit shelter or bypass trust) for the primary benefit of the children, but which can also be made available for the surviving spouse during his or her lifetime.
To recap, these trusts are best suited for couples or individuals who:
- Own a significant estate and want to keep their estate taxes low.
- Would like to provide for their surviving spouse, but want to retain control over where the remaining assets end up—generally they go to the couple’s children or heirs.
- Are in blended families and want to make sure the beneficiaries are protected from past relationships.
- Want to ensure assets are protected from creditors and remarriage.
- Live in a state that has estate taxes that are separate from federal estate taxes.
Trust the Experts on Marital Trust
These trusts are a powerful component of a careful, comprehensive estate plan. With that said, they need to be set up with care, and the best way to do that is through estate planning professionals. At the Family Heritage Trust Company, we can make sure your goals and circumstances are covered in a robust marital trust.