What is a Marital Trust?
Updated: Feb 27, 2022
What is It? A marital trust is a type of trust wherein the settlor (person establishing the trust) bestows management duties on a trustee for the benefit of a surviving spouse and the married couple’s heirs (i.e. children and grandchildren). This type of irrevocable trust goes into effect when the first spouse dies. One type of marital trust is a QTIP.
How does it work? Assets are moved into the trust upon the death of the first spouse and the trust then provides monetary support to the surviving spouse, tax-free, through the “marital deduction rule” (See Internal Revenue Code § 2056). Once the second spouse dies, the trust passes to its designated heirs. A marital trust may allow the couple’s heirs to pay less in estate taxes and avoid the headaches of probate court.
How do you establish one? A marital trust is best established with the help of an attorney who specializes in estate planning, though one could be established on your own. The trust document will list how trust property will be used and distributed as well as who will be the trustee and beneficiaries.
Do I need one? There are tax and probate reasons to establish a marital trust as described above. Besides those reasons, a common reason to set up a marital trust is when a family is blended and children exist from a prior marriage. The intent may be to provide support for a surviving spouse until death, but then pass assets on to a decedent's individual children. Or the intent may be to ensure that if the surviving spouse chooses to remarry, then assets do not pass to the new spouse, but instead “revert” to the original couple’s children. A trust is a flexible vehicle that can be made to serve almost any purpose desired by its creator.It is this flexibility that makes it so valuable to clients and dangerous for those attempting to do it on their own.