Marital Trust Planning – Making the Most of Your Money

October 10th, 2017
by Vanessa Oliver

Marital Trust planning is essential for those couples who will be concerned with protecting surviving loved ones, especially children, and avoiding estate taxation.


Marital Trust planning is the use of trusts to offer the goals of asset preservation and family protection. The word, “Marital Trust” is employed on this page to go over both marital trusts and non-marital trusts

What is a Marital Trust? There are essentially three kinds of marital trusts. QTIP (Qualified Terminal Interest Property) Trusts, Estate Trusts and General Energy Appointment Trusts. Each carries a specific targeted goal, nevertheless the good reason that someone would think about a Marital Trust is to offer their surviving spouse and children.

A QTIP Trust, in most cases, is funded upon the death of a single spouse and directs payments of great interest income on a minimum of a yearly basis for the surviving spouse. The remainder within the trust then passes upon the death with the surviving spouse for the children of the first Grantor. The benefit for this trust could it be allows someone with children coming from a previous marriage in order that those youngsters are ship to, whilst providing for a surviving spouse. An Estate Trust essentially will the same, but demands the remainder to be passed through the surviving spouse’s estate, giving the surviving spouse greater discretion within the allocation with the original asset. A General Energy Appointment Trust is appropriate in case there are no children and provide the surviving spouse access to the full amount within the trust in their lifetime.

The most important part of a Non-marital trust to recollect could it be won’t shield assets from estate taxation. They simply postpone the taxation event prior to the death with the surviving spouse, because there is a unlimited marital exemption upon the death with the first spouse. Assets inside a marital trust pass susceptible to any applicable estate tax guidelines. This is very very important to QTIP Trusts while they might have assets earmarked for your kids with the Grantor, but they are potentially diminished by estate taxation. To shield assets from estate taxation, you’ll want a Non-marital trust.

What is a Non-Marital Trust? Non-Marital Trusts are often called “Credit Shelter Trusts” or “Bypass Trusts.” These trusts let the Grantor to offer income to their surviving spouse, while ultimately passing assets for the Grantor’s children

Bypass Trusts are irrevocable trusts which can be created during the time of the Grantor or even in the Grantor’s Last Will and Testament. If they’re made in a Grantor’s Will, they become irrevocable upon the death with the grantor. The trust is funded by having an amount equal to the annual exclusion applicable around with the Grantor’s death. In 2017, the annual exclusion amount is $5.49 million dollars. A surviving spouse may have use of interest income through the trust as well as the trust principal, only to the surviving spouse’s health, education, maintenance or support. Upon the death with the surviving spouse, the trust remainder passes for the original Grantor’s children tax-free.

One important note with Bypass Trusts is that the IRS carries a three year recall period for tax-free transfers. That signifies that when the surviving spouse dies within three years with the original Grantor’s death, the assets is going to be susceptible to estate taxation. Also, if a family residence is transferred in to a Bypass Trust, it is going to get the stepped-up value as of the date with the Grantor’s death. However, when the price of the residence will continue to increase, any gain attributed through the date with the Grantor’s death for the distribution to beneficiaries is going to be susceptible to capital gains tax. A Bypass Trust cannot claim the $250,000.00 personal capital gains exemption.

Surviving spouses are often named as trustees, making compliance with tax requirement critical in both the drafting of Bypass Trusts and in their execution after the original Grantor’s death. That’s why it is crucial to refer to by having an experienced estate planning attorney when contemplating Marital and Non-Marital Trusts. Remember that a strong basic estate plan’s and a must for just about any family.

For more information, email me at [email protected] or visit www.timeforfamilies.com.

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