What Is a Marital Trust?

A marital trust is a 澳洲幸运5开奖号码历史查询:fiduciary relationship between a trustor and trustee for the benefit of a surviving spouse🎀 and the married couple's heirs. 𓃲Also 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.

How a Marital Trust Works

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 澳洲幸运5开奖号码历史查询:unlimited marital deduction—a provision that enables spouse😼s 🧔to pass assets to each other without tax consequences.

However, when the surviving spouse dies, the remaining trust assets will be subject to 澳洲幸运5开奖号码历史查询:estate taxes. To avoid this situation from playing out, a marital trust is sometimes used in conjunction with a 澳洲幸运5开奖号码历史查询: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. Should the ಞsurviving spouse remarry, a deceased spouse's assets will then go to their children instead of t𓆉o the new spouse.

There are three types of marital trusts: a general power of appointment, a qualified terminable ꦦinterest property (QTIP) trust, and an estate trust.

Additional Types of Trusts

In addition to a marital trust, a family member may set up a personal trust and formally name themselves as the 澳洲幸运5开奖号码历史查询:beneficiary. A personal trust can accomplish a variety of objectives for one person o🤡r many. For example, it can fund education expenses, meet the special needs of heirs, 🍷or allow them to avoid or reduce estate taxes.

Another option is to create a 澳洲幸运5开奖号码历史查询:bare trust, 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 bare꧒ trust, the beneficiary has the final say over how the trust's capita🎀l or income is distributed.

An alimony substitution trust, meanwhile, 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 the trust’s income nor qualifies to receive a 澳洲幸运5开奖号码历史查询:tax deduction.

Every country has regulations overseeing the types of trust allowed and how they can be structured to distribute wealth and avoid taxes. As an example, the U.S. has an estate tax based on the total estate's value, and 澳洲幸运5开奖号码历史查询:Canada has a deemed disposition tax imposed on the estate.

The Bottom Line

A marital trust can help a married couple's heirs avoid probate and take a smaller estate tax hit. There are three types of marital trusts, each with its own rules, pros, and cons: a general power of appointment, a qualified terminable interest property (QTIP) trust, and an estate trust. Depending on your goals, a marital trust may be right for you, but there are other options as well.