What Is the Purpose of a Marital Trust?
Picture this: You just got engaged, and you’re in pre-wedding bliss. Between all the shopping, sending invitations and planning, you hear about a “marital trust”. You start to wonder if this is something you and your partner need. What is a marital trust, and is it important for you and your partner to consider?
What is a marital trust?
A marital trust is an irrevocable trust used to transfer a deceased spouse’s assets to the surviving spouse without creating any tax liabilities. When the surviving spouse dies, the assets in the trust are outside of their estate, which means their estate taxes will be lower (the federal tax paid on someone’s estate after they die). There are also numerous benefits for beneficiaries of this trust, including asset allocation and tax benefits.
In a marital trust, the term “principal” is used to refer to assets placed in the trust when it’s established. These principals may be investment accounts used to generate income for the beneficiary. Real property, retirement accounts and other accounts may also be placed inside the trust. Placing the assets in the irrevocable trust also protects assets from creditors and any future spouses.
There are three main parties involved in creating, managing and distributing a marital trust:
- Grantor: the person establishing the trust.
- Trustee: the person managing the trust and the assets it contains.
- Beneficiary: the person or persons to receive assets in the trust as per directions of the trust.
What does it do?
A trust can provide income to the surviving spouse, tax free. The grantor may set a limit on how much can be withdrawn from the trust, something the couple and their estate planning attorney should discuss when the trust is created. When the surviving spouse passes, the trust is then passed on to whomever the first spouse’s will says should get the trust—only a surviving spouse may be the beneficiary of the trust.
A marital trust also doubles a couple’s estate tax exemption limit. For example, say in a given year the estate tax exemption was $12 million. Using this trust would increase the exemption to $24 million, potentially shielding $24 million of a couple’s net worth!
Why should you consider a marital trust?
A marital trust is a way to ensure individuals outside of the immediate family don’t have access to the family’s wealth. There are many types of spousal trusts, including Qualified Terminable Interest Property Trusts (QTIP), bypass trusts and Spousal Lifetime Access Trusts (SLAT). We believe the best way to determine if a trust is right for you and your partner is to meet with a qualified estate planning attorney.
Creating a Marital Trust with Ozarks Legacy Law
Reach out to our team of estate planning attorneys for a quick, easy, and streamlined process to plan your estate, including creating a trust for you and your partner. We can help you find the right spousal trusts for the life you’ve built together. Book a call today!
