A Marital Trust is a specific type of sub-trust typically used when estate planning for spouses who are either concerned about estate taxes or who would like to maintain a degree of control over the ultimate disposition of those assets upon the death of the second spouse. This type of trust can provide some flexibility to trustees to protect specific assets and values from estate tax liability until that second spouse passes away.
The Trust’s creator (“trustor”) creates this irrevocable Trust for the primary benefit of the spouse (i.e., your spouse can enjoy your assets after you have passed away). A Marital Trust is useful for someone who has a blended family, worries about elder abuse of their spouse or someone influencing their spouse to disinherit their beneficiaries, or is wealthy enough to worry about the estate and generation-skipping transfer taxes. There are many ways to design a Marital Trust, but if you also want your spouse’s inheritance to qualify for a benefit called the “unlimited marital deduction” (i.e., you could pass an unlimited amount of property to your spouse completely free of estate tax at your death), the Tax Code has stringent requirements for the design of this Trust.
The Qualified Terminable Interest Property Trust (QTIP) is a specific kind of Marital Trust. Its terms are properly structured to comply with the tax rules so that you can pass your property to your spouse in a trust and still benefit from the unlimited marital deduction.
Our Marital Trust within the Wealth.com platform is known as a QTIP Trust, which means that it is properly structured to qualify for the unlimited spousal exclusion from estate tax.
Here is a helpful resource article that goes into more detail on the Marital Trust: A Practical Explainer
The Marital trust is located in the Distributing Assets panel under the 'Sub-Trust Questions' section within your document workflow:
Key features of the Marital Trust
You should be aware of some key features of the Marital Trust that can be included in your estate plan.
First, only your spouse can be a beneficiary of the Marital Trust.
Second, your trustee will be required to make distributions of any “income” generated by the trust assets (e.g., rent if the Marital Trust owns a rental unit) at least every year, but can do so more frequently if desired.
Third, your trustee (who can be your spouse unless you prohibit your spouse from serving) can make distributions to your spouse to assist with their health, education, maintenance, or support (HEMS). If the distribution is for any other reason, an independent trustee (who cannot be your spouse) will be appointed.
Fourth, your spouse can have the power to decide where the remaining assets go upon their own death if you choose to give your spouse a “power of appointment.” You can set limits on the people or organizations to whom your spouse can gift assets from the Marital Trust. (Refer to Power Of Appointment for more information)
Fifth, the Marital Trust will terminate upon your spouse’s death.
How Does a Marital Trust Work?
They receive a deceased spouse’s assets for the benefit of the surviving spouse. They generally protect assets from creditors while preserving the deceased spouse’s wishes for how their assets will be distributed and used, including at the surviving spouse’s death. When properly structured for tax planning purposes, they can preserve the deceased spouse’s generation-skipping transfer tax exemption amount without jeopardizing the unlimited marital deduction.
