What Is a Marital Trust?

In the event that you’re married then you could be thinking about what will happen to your assets when you or your spouse dies. The answer will depend on several factors, such as whether or not you’ve set up an estate plan that includes a marital trust. Marital trusts offer a variety of advantages for beneficiaries, including the allocation of assets and tax benefits which are worthy of consideration when planning your estate. The marital trust can be described as an irrevocable trust that allows you transfer the deceased spouse’s assets over to the surviving spouse, without incurring tax. The trust also shields assets from creditors as well as future spouses that the surviving spouse could confront.

In addition, if the surviving spouse dies, the trust assets in the trust aren’t included in their estate. This keeps the estate taxes lower. Like other trusts, there are three people involved in the process of establishing, managing and finally passing on the trust. Trustee , The person who sets up the trust. The Trustee , The person or entity that manages trust assets and the trust’s funds. Beneficiary , The person who is the person who receives the trust’s assets when the grantor dies.

It is also includes its principal. This is the assets that were initially placed in the trust. These can be investment products that produce an income for the beneficiary over time.

How a Marital Trust Works

A marital trust can be an excellent tool that can reduce the tax burdens for couples who are high-net-worth ( HNWIs).

A marital trust effectively increases the estate tax exemption of the couple’s limit. Estate tax is the federal tax that has to be paid on an estate when they die. The limit on estate tax relates to the amount of an estate can be tax-free.

In 2022 the maximum estate tax is $12.06 million. That means using a marital trust will effectively double that figure by $24.12 million. In essence, around $24 million of the net worth of a couple is protected from estate taxes through using the marital trust.

Imagine a grantor gives $5 million to the surviving spouse via the marital trust, as an instance. The spouse who is surviving can transfer another $19 million to children of the couple through the trust tax-free, due to an estate tax doubled advantages of an estate trust.

A marital trust can also be advantageous because it will provide an income stream to the spouse who died without tax. The grantor can establish a limit on how much money can be taken out of the trust over the course of time. Only surviving spouses is able to be a beneficiary of an estate trust. If the spouse who survived dies the trust will be transferred to whoever the will of the first spouse is in force.

When Should You Consider a Marital Trust?

If keeping your wealth in your family following your death is essential to you and your family, then a marital trust is a tool for estate planning that can ensure that those who aren’t part of your immediate family do not gain access to your wealth. It is possible to put a range of assets in the marital trust, such as properties, retirement accounts and investments accounts.

There are various kinds of spousal trusts such as a qualified terminable property trust (QTIP) as well as a bypass trust, and the spousal life-long access trust. The trusts that are different have different tax advantages and require the assets to be utilized in specific ways. Contact an estate planner or certified public accountant to know more about these various kinds of trusts for spouses.

Pros and Cons of a Marital Trust

There are many advantages of an this, for instance the fact that they:

Double your exemption from estate tax total to $24.12 million

Give financial stability and income to the spouse who is surviving.

Maintain assets within the family

Guard assets from creditors and new spouses

Will provide financial security to those who remain beneficiaries after the spouse who survived dies

Like all financial instruments However, there are some negatives when the use of marital trusts. The disadvantages are that they:

They are irrevocable trusts which means that when they’re set up, it’s very complicated to dissolve them and alter their conditions.

Limit offer to $24.12 million estate tax exemption

You must transfer your assets to the trust, which is a lengthy procedure

How to Create a Marital Trust

This is an intricate estate planning tool that must be carefully designed. Due to its tax advantages it is essential to work with not just an estate planner but also a certified public accountant to make sure that the trust’s creation correctly.

After identifying the best experts then you must prepare a trust agreement. The trust document should define the trust’s grantor (you) and trustee (who manages the trust) and the beneficiaries. Marital trusts are irrevocable meaning that once they’ve been established they can’t be dissolved. Keep this in mind when you make the marital trust.

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