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Choosing the trusts that accomplish your goals and meet your needs is essential in estate planning. The first step is understanding what each type of trust can provide. Our New York & New Jersey estate planning attorneys explain the various types of trusts available. This blog discusses what makes marital trusts unique from other trusts and why you may want to consider a marital trust for your estate plan.
What Is Different About a Marital Trust vs. Other Trusts?
Trusts may be designed to benefit a variety of individuals and organizations. Marital trusts primarily benefit the surviving spouse. Examples include AB Trusts, QTIP Trusts, and Spousal Lifetime Access Trusts (SLATs). However, providing for a surviving spouse is not the only purpose of creating a marital trust.
A marital trust provides income for the life of the surviving spouse. It can also preserve preserving all or a portion of the principal for other beneficiaries. For example, the surviving spouse may enjoy the use of the assets and receive income generated by the assets during their lifetime. At their death, the principal of the trust is distributed to or used for the benefit of successor beneficiaries.
Marital trusts also provide other benefits. A marital trust provides asset protection. Another benefit is estate tax deferral or elimination. In a blended family, a marital trust ensures a surviving spouse has income and resources during their lifetime while preserving the principal for the deceased’s children from a previous relationship.
Marital trusts have their drawbacks. Most marital trusts are irrevocable, meaning you cannot change the trust once you create it. Also, marital trusts may eliminate estate taxes for most couples, but individuals with substantial wealth may need additional strategies to reduce estate taxes. Transferring assets to a marital trust can also be a complicated and time-consuming process, depending on the assets being transferred to the trust.
Couples May Need Additional Types of Trusts to Accomplish Their Goals
Marital trusts are specific types of trust agreements. You may not be able to accomplish your goals or needs with a marital trust. For example, you may need a special needs trust (SNT) to protect an heir’s eligibility to receive government benefits for a disability. If you want to bequeath assets to a charity, you may need to establish a charitable trust.
A generation skipping trust (GST) allows you to transfer assets to your grandchildren and allow your children to avoid paying estate taxes on those assets. You can set up the trust to allow your children to benefit from the income that the trust assets generate. Life insurance trusts serve as the beneficiary of your life insurance policy to avoid estate taxes and retain control over how the life insurance proceeds are used for your beneficiaries.
Testamentary trusts establish a trust through your will for the benefit of your minor children. It is a simple trust that places a minor’s inheritance in trust until they reach a specific age you designate in the trust. A spendthrift trust allows you to choose when and how the principal trust assets can be distributed to the beneficiaries. Spendthrift trusts help prevent the misuse of trust funds.
Most trusts provide many of the same benefits, including reducing estate taxes, asset protection, and control. However, each type of trust serves a different purpose.
Get Help from Our New Jersey & New York Estate Planning Attorneys
A comprehensive estate plan protects your assets, minimizes taxes, and provides for your loved ones. At Merlino & Gonzalez, our New Jersey & New York estate planning attorneys have extensive experience in trust, estate, and elder law. Contact us to schedule an appointment to discuss your situation with our attorneys.