What Is a Family Trust & a Marital Trust?

By Jeff Franco J.D./M.A./M.B.A.

Estate planners commonly create family and marital trusts to minimize estate taxes for their clients. In some cases, it’s necessary to create both types of trusts contemporaneously in order to effectively minimize the estate tax. However, achieving this result requires careful preparation of the trust documents to insure that they include unambiguous language that adheres to the federal estate tax laws.

Estate Tax Fundamentals

Marital and family trusts are estate planning tools that take advantage of the marital deduction and unified credit. The marital deduction reduces your “taxable estate” -- which is the final estate value subject to the estate tax -- by the value of all assets you transfer to your spouse at death. The unified credit, on the other hand, is an additional exemption that further reduces the value of your estate (beyond the marital deduction) for tax purposes. All taxpayers are eligible to utilize a unified credit, but since the amount can change each tax year, your available credit amount will depend on the year of your death.

Marital Trusts

The underlying purpose of a marital trust is to provide assurance that the estate will take full advantage of the marital deduction by making the surviving spouse the sole beneficiary. Since the marital deduction is only available for assets you leave to a surviving spouse, naming your spouse as the sole beneficiary eliminates the possibility of other family members receiving the assets and losing the marital deduction on your estate tax return. Moreover, you can draft the marital trust document to prevent your spouse from disposing of trust assets during their lifetime. If you do, however, you must provide your spouse with a general power of appointment in the trust document. A general power of appointment allows the surviving spouse to name the beneficiaries of the marital trust assets that remain at her death. This is vital since the IRS will not allow for the marital deduction on the first spouse’s estate return unless the surviving spouse receives either full ownership of the assets or a general power of appointment over them.

Protect your loved ones. Start My Estate Plan

Using Family Trusts

Creating a family trust, which is simply a trust in which all beneficiaries are your family members, isn’t essential unless you choose to allocate a portion of your estate to other family members such as your children. By creating a family trust, instead of transferring 100 percent of your estate to your surviving spouse, you can rest assured that in the event your spouse remarries after your death or becomes estranged from your children, they will receive the trust assets.

Overall Tax Implications

The benefits of combining a marital and family trust is that the assets you transfer to the marital trust are entirely exempt from the estate tax because of the marital deduction. This allows you to reserve the unified credit for the remaining estate assets you transfer to the family trust. As a result, your estate only pays tax on the value of assets you transfer to the family trust, less the applicable unified credit amount for the year of your death.

Protect your loved ones. Start My Estate Plan
Difference Between Beneficiary Trust & Marital Trust


Related articles

Will My Child Support Lower My Child's SSI Amount?

If you have a special-needs child and you're facing divorce, the issue of child support can be tricky, because it could affect the government benefits she's receiving. Supplemental Security Income provides money to disabled and blind individuals, including children. They do not receive this income simply because they're infirm, however. They must also have limited earnings and assets. The Social Security Administration has taken the position that child support is unearned income to your child.

The Types of Trust Funds for a Minor

By setting up a trust, you can place assets under the control of a trustee, for the benefit of another person, whether an adult or a minor. A trust has several advantages for the beneficiary and the person who sets it up: The trust does not have to go through probate when the grantor dies, and -- depending on how it's set up -- it allows the grantor to avoid taxes on income generated by the trust assets. There are several different types of trusts that can benefit a child who's not yet ready to handle financial responsibilities.

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.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

What Is an Irrevocable Living Trust?

In the United States, there are various types of trusts you can create, all of which are either revocable or ...

Can a Surviving Spouse Be the Trustee of a Marital Trust?

Estate planning is an important and sometimes complicated means of planning for the disposition of property upon death, ...

Taxes & the Advantages of Living Trusts

A living trust is a document that a person creates while he is still alive, which enables him to financially provide ...

Family Trust Planning Guide

A family trust is an estate planning tool that allows you to appoint a trustee to administer assets on behalf of ...

Browse by category
Ready to Begin? GET STARTED