Difference Between Beneficiary Trust & Marital Trust

By Heather Frances J.D.

Trusts can provide a way for you to transfer your assets to your family while implementing safeguards to ensure the money isn’t spent too quickly. Both beneficiary trusts and marital trusts can be revocable trusts, meaning you can terminate the trust during your lifetime if you change your mind. However, the trusts become irrevocable upon your death. You can use either type of trust, or both, according to your needs and the goals you want to accomplish.

Trusts can provide a way for you to transfer your assets to your family while implementing safeguards to ensure the money isn’t spent too quickly. Both beneficiary trusts and marital trusts can be revocable trusts, meaning you can terminate the trust during your lifetime if you change your mind. However, the trusts become irrevocable upon your death. You can use either type of trust, or both, according to your needs and the goals you want to accomplish.

Credit Shelter Trusts

Marital trusts vary in complexity, but they are generally designed to take advantage of provisions in federal tax laws allowing property to pass from you to your surviving spouse without being taxed. The credit shelter trust, or AB trust, is the most common type of marital trust. Under a credit shelter trust, the trust is split when you die. One trust contains your property (Trust A) and one contains your spouse’s property (Trust B). Your spouse retains the right to use the property in Trust A for her lifetime, but it passes to your named beneficiaries when she dies. When she dies, the property in Trust B also passes to the named beneficiaries. When you and your spouse split your property appropriately, you might avoid estate taxes altogether. For example, if you own $4 million in assets, your credit shelter trust might split those assets into separate $2 million trusts (A and B). If the estate tax cap at the time of your death is $3.5 million, the separate trusts avoid estate taxes where you would have paid taxes on the entire $4 million if you didn't have a trust.

File a DBA for your business online. Get Started Now

QTIP Trust

A qualified terminable interest property (QTIP) trust is another type of marital trust. It gives your spouse all of the trust income for her life, but can be designed to give the property in the trust to other beneficiaries, such as children or grandchildren, upon your spouse's death. QTIP trusts can include income-producing assets, such as investment property, stocks or rental homes. QTIP trusts are frequently used by people in a second marriage because they protect a child’s inheritance while allowing a spouse to benefit from the property while she is alive. For example, if you have children from a previous marriage, you can name them as the beneficiaries of your trust but give your current spouse the rights to income from the trust’s assets while she is alive.

Life Estate

You can also give your spouse the ability to decide who inherits your property when she dies. To do this, you can give your spouse a life estate in your property under your will. With a life estate, your surviving spouse does not have full ownership rights to the property after you die, but she does have the ability to benefit from the property during her life. By giving her a life estate with power of appointment, you allow your surviving spouse to leave the property to beneficiaries of her choosing. This gives you less control over which beneficiaries receive your property after your death than you have under a QTIP or credit shelter trust.

Beneficiary Trust

A beneficiary trust, or legacy trust, gives benefits to your named beneficiary but does not allow him to control the property in the trust. For example, if you create a beneficiary trust for your son, he receives the income from the trust during his lifetime but cannot sell the trust’s property. You can also direct that funds in the trust go to your son’s children or other beneficiaries upon his death. Since the trust’s assets are not titled to the beneficiaries, your beneficiaries’ creditors cannot claim the assets, nor can your beneficiaries lose the assets through divorce. If you are concerned about your beneficiary’s ability to handle money, you can include a spendthrift provision in the trust, preventing your beneficiary from borrowing against the trust's income or property.

File a DBA for your business online. Get Started Now
A Living Trust Explained

References

Related articles

Living Trusts & Surviving Spouses

A trust is an estate planning device created when a grantor surrenders his property to a separate legal entity for the purpose of benefiting select individuals. A trustee named by the grantor holds the trust property in his name for the benefit of the beneficiaries and manages the property according to the trust's terms. A living trust is one established by a living grantor, often with the grantor serving as the first trustee. The rights of the spouse to the trust property when the grantor dies depends on state law and the terms of the trust.

What Items Should Be Put Into a Living Trust?

A living trust is created during a person's lifetime and comes in two types: revocable and irrevocable. A revocable trust allows you to freely transfer your property in and out of the trust. By contrast, the maker of an irrevocable trust cannot serve as trustee or exercise control over the trust's assets, so irrevocable trusts are less flexible than revocable trusts. Many people fund their revocable trusts with their most valuable assets, which usually include the family home, bank accounts and investments.

Joint Trust Vs. Single Trust

Although a single trust and a joint trust are designed for the same basic purpose of leaving property to specific individuals upon the death of the person or persons who created the trust, there are some differences. The primary distinction between a single trust and a joint trust is the number of people who create the trust and manage the trust property. A joint trust, however, can provide tax relief not offered by a single trust for estates worth a considerable amount of money.

Related articles

Is a Living Trust Liable or Subject to Probate?

A living trust holds assets that are managed by a trustee for intended beneficiaries. Also called a revocable trust, it ...

How to Leave an Entire Estate to Various Charities

Without an estate plan or will, your state’s laws determine how your assets will be distributed upon your death, ...

Can a Trustee Revoke or Amend a Revocable Trust in Colorado?

If you are looking for a way for your estate to avoid the costs and complications of a court-supervised probate process ...

Inheritances and Family Trusts

Probate can be a difficult process even with the simplest of estates and few heirs. That process can quickly become ...

Browse by category