What is a Marital Trust?
A marital trust is a fiduciary relationship between a trustor and trustee for the benefit of a surviving spouse and the married couple's heirs. Also called an "A"trust, a marital trust goes into effect when the first spouse dies. Assets are moved into the trust upon death, and the income that these assets generate go to the surviving spouse. Under some arrangements, the surviving spouse can also receive principal payments. When the second spouse dies, the trust passes to its designated heirs.
A Marital Trust in Detail
There are three types of marital trusts: a general power of appointment, a QTIP trust and an estate trust. A marital trust allows the couple's heirs to avoid probate and take less of a hit from estate taxes by taking full advantage of the unlimited marital deduction, which allows spouses to pass assets to each other without tax consequences. However, when the surviving spouse dies, the remaining trust assets will be subject to estate taxes. To further avoid estate taxes when the surviving spouse dies, a marital trust is sometimes used in conjunction with a credit shelter trust (also called a "B"trust).
An example of when a marital trust might be used is when a couple has children from a previous marriage and wants to pass all property to the surviving spouse upon death but also provide for their individual children. In case the surviving spouse remarries, the deceased spouse's assets will go to his or her children instead of to the new spouse.
Marital Trust and Additional Types of Trusts
In addition to a marital trust, a family member may set up a personal trust, which the trustor creates for him or herself as the beneficiary and that can accomplish a variety of objectives for one person or many. For example, a personal trust can fund education expenses, meet special needs of heirs, or allow them to avoid or reduce estate taxes.
In addition, a bare trust is a type of trust in which the beneficiary has an absolute right to the capital and assets within the trust, as well as any income generated. While a trustee often oversees the investments within a bare trust, the beneficiary has the final say over how the trust's capital or income is distributed.
An alimony substitution trust is an agreement in which a divorced person agrees to pay spousal support via a trust’s generated income. With regard to taxation, the ex-spouse responsible for providing payments is not required to pay income taxes on trust’s income nor do they receive a tax deduction.
Disclaimer: This article is intended to provide general information. The content of this publication is for informational purposes only. Neither this publication nor its author is rendering legal or other professional advice or opinions on specific facts or matters. No attorney-client relationship is created by this advisory, nor by any response to the information herein, unless and until a conflicts review has been conducted by Steven F. Bliss, and a written agreement containing all terms of representation has been signed.