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Marital trusts can accomplish several estate planning goals for couples. They can help couples reduce estate taxes, protect assets, and ensure property stays within a bloodline. Deciding if a marital trust is right for your estate plan involves considering your family’s needs, tax consequences, and financial goals. Our New York & New Jersey estate planning attorneys work with you to assess whether a marital trust is the best way to accomplish your estate planning goals.
What Is a Marital Trust?
A marital trust is also known as a spousal trust or a marital deduction trust. It is an irrevocable trust whereby a spouse transfers assets to a surviving spouse. A marital trust takes advantage of the unlimited marital deduction to transfer the assets exempt from estate taxes.
There are several types of marital trusts. The type of marital trust you use depends on your goals in creating the trust.
Qualified Terminable Interest Property (QTIP) Trust
QTIP trusts are generally irrevocable testamentary trusts. The grantor’s will governs the trust. The assets are transferred directly to the marital trust when the grantor dies. The income from the trust’s assets is paid to the surviving spouse until their death.
However, the principal of the trust remains protected. Upon the surviving spouse’s death, the principal assets in the trust are distributed according to the grantor’s wishes. Some trusts may pay a portion of the principal to the surviving spouse during their lifetime, but it is not necessary. How the trust is managed is determined by the grantor’s will.
A QTIP trust is useful in second marriages when a person wants to provide for their spouse during their lifetime but leaves the principal assets to their children. The trust also defers estate taxes on the trust assets until the surviving spouse’s death.
A-B Trust or Bypass Trust
An A-B trust or bypass trust is a marital trust created by a couple. It involves dividing a joint trust into two separate trusts upon the death of a spouse. Trust A becomes the Survivor’s Trust. The surviving spouse controls this trust and can change the terms. The surviving spouse determines how the assets in Trust A are distributed upon their death.
Trust B is the Deceased’s Trust. This trust is irrevocable. The surviving spouse may benefit from the trust during their lifetime. However, upon their death, the terms of the trust (determined by the deceased spouse before their death) dictate how the assets are distributed.
AB Trusts offer several benefits, including asset protection, estate tax reduction, preservation of assets for future beneficiaries, and support for a surviving spouse during their lifetime. The trust also allows each spouse to control how their portion of the assets is distributed after their death.
Call to Learn More About Marital Trusts from Our New York & New Jersey Estate Planning Attorneys
Trusts are valuable estate planning tools when used correctly. However, marital trusts often involve complex tax rules and regulations, upfront costs, and administrative costs. Therefore, it is best to have the advice and guidance of experienced estate planning and trust attorneys.
Our New York & New Jersey estate planning attorneys at Merlino & Gonzalez help you evaluate your goals, needs, and financial situation to determine the best estate planning strategy. Contact us today to schedule a consultation with our attorneys to discuss whether a marital trust is right for you.