What is a marital trust?

A marital trust is a type of irrevocable trust that allows one spouse to transfer assets to a surviving spouse tax free, using the unlimited marital deduction, while providing benefits not available if transferred outright.

Is a marital trust a good idea?

How a Marital Trust Works. A marital trust allows the couple's heirs to avoid probate and take less of a hit from estate taxes by taking full advantage of the unlimited marital deduction—a provision that enables spouses to pass assets to each other without tax consequences.

What is the difference between marital trust and family trust?

At the time of your death, the assets in your family trust are protected by the exemption, and the assets in your marital trust are protected by the marital deduction. No estate taxes are due.

Who is the beneficiary of a marital trust?

A marital trust, also known as a marital deduction trust, is one type of beneficiary trust designed to protect the assets of a surviving spouse. The beneficiary of a marital trust is the surviving spouse.

What happens to marital trust when surviving spouse dies?

In most cases, the trust assets pass on to the couple's children or other family members when the surviving spouse passes. However, the rules of different types of marital trusts dictate whom can be named beneficiary after the surviving spouse's death.

What is the Difference Between a Family Trust and a Marital Trust?

Can you gift from a marital trust?

In those cases, a simple 5 or 5 power, which allows the surviving spouse to distribute the greater of 5% or $5,000 of the marital trust to himself or herself, could be used, although any gift made under that power would incur a gift tax.

Do marital trusts get a step up in basis?

The assets remaining in the Marital Trust at the death of the surviving spouse are includable in the surviving spouse's taxable estate, and will receive a step up in income tax basis equal to the fair market value of the assets at the death of the surviving spouse.

Can a surviving spouse change a marital trust?

After one spouse dies, the surviving spouse is free to amend the terms of the trust document that deal with his or her property, but can't change the parts that determine what happens to the deceased spouse's trust property.

Are marital trusts taxable?

A marital deduction trust is a trust in which transfers of property between married partners are free of federal transfer tax.

Is a marital trust protected from creditors?

The benefit is that if a creditor makes a claim against your spouse, assets in the trust are protected because they are not legally owned by your spouse - they are your assets left in trust under your spouse's control and for your spouse's benefit.

Is a marital trust the same as a bypass trust?

With a marital trust, the surviving spouse generally is able to access the income, as well as the principal balance. However, the principal in a bypass trust can be used for expenses of the surviving spouse, such as health and support, but is not generally accessible to the surviving spouse.

Is a family trust a marital trust?

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.

What are the disadvantages of a family trust?

Disadvantages of a Family Trust

You must prepare and submit legal documents, which the court charges a fee to process. The second financial disadvantage of a family trust is the lack of tax benefits, especially when it comes to filing income taxes. When the grantor dies, the trust must file a federal tax return.

Does a surviving spouse get a step up basis on the house?

Step-up in basis has a special application for residents of community property states such as California. There is what we call the double step-up in basis that may apply to your situation. When one spouse dies, the surviving spouse receives a step-up in cost basis on the asset.

How does marriage affect a trust?

Effect of Marriage on estate plans:

Under California law, a marriage automatically invalidates any pre-existing will or trust as to the new spouse's inheritance rights, unless the documents provide for a new spouse, or clearly indicate a new spouse will receive nothing.

How can a trust avoid estate taxes?

Do assets owned by a trust get a step up basis at death?

The trust assets will carry over the grantor's adjusted basis, rather than get a step-up at death. Assets held in an irrevocable trust that has its own tax identification number (i.e., nongrantor trust status) do not receive a new basis when the grantor dies.

Can a trustee remove a beneficiary from a trust?

In most cases, a trust deed generally offers two processes for the removal of a beneficiary. Most commonly, the beneficiary can sign a document to renunciate all interests as a beneficiary. Otherwise, the trustee may have discretionary power to revoke the beneficiary.

How does a revocable trust work when one spouse dies?

What happens in this type of trust is that the trust is a joint revocable trust when both spouses are alive. When one of the spouses dies, the trust will then split into two trusts automatically. Each trust will have half the assets of the trust along with the separate property of the spouse.

What happens to a bypass trust when the surviving spouse dies?

Upon the surviving spouse's death, the contents of the Bypass Trust, no matter what they had grown to during the surviving spouse's life, would not be included in the taxable Estate of the surviving spouse. Since 1981, literally millions of American couples have created AB or ABC Trusts.

What assets do not get a step-up in basis?

Assets That May Not Be Eligible for a Step-Up in Basis

Pensions. Tax deferred annuities. Certificates of deposit. Money market accounts.

How married couples can use trusts in estate planning?

The trust provides control and assurances that the assets will go to the children and other beneficiaries as intended and, at the same time, protects against the possibility that a surviving spouse may seek to redirect assets to nonintended beneficiaries.

How does a beneficiary get money from a trust?

How can a beneficiary claim money from a bare/absolute trust? If a beneficiary of a bare trust is over the age of 18 years then they can simply ask the trustees to pay the money out to them that they are entitled to. As long as there is no other criteria to satisfy, the trustees should not refuse.

How much money can a husband gift his wife?

Understanding the Gift Tax

The annual gift tax exclusion allows individuals to give up to $15,000 tax-free to a single recipient. Spouses are entitled to the same annual gift tax exclusion benefit for a combined total of $30,000 to a single recipient (called a "split gift").

Do I have to pay taxes on a gift from a trust?

A gift in trust is a way to avoid taxes on gifts that exceed the annual gift tax exclusion amount. One type of gift in trust is a Crummey trust, which allows gifts to be given for a specific period, establishing the gifts as a present interest and eligible for the gift tax exclusion.