What is the difference between marital trust and family trust?

Generally speaking, a marital trust is a specific allocation to the surviving spouse without too many strings attached. The family trust is more intended for the living children of the spouse who died first. Usually, the family trust is the money used as a last resort.

What's the difference between a marital trust and a 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.

What type of trust is a marital trust?

A marital trust is a type of irrevocable trust that allows you to transfer assets to a surviving spouse tax-free. It can also shield the estate of the surviving spouse before the remaining assets pass on to their children.

What is the point of a marital trust?

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 a trust and a family trust?

A living trust can distribute assets to anyone who is named as a beneficiary when the grantor dies. Living trust beneficiaries can include family, friends, charities, alma maters, pets and others. By contrast, family trusts are designed to benefit only the family members of the grantor.

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

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.

Why would someone set up a family trust?

A Family Trust is a legally binding Estate Planning tool that's set up to financially protect and benefit you and your family. Like other Trusts, a Family Trust might be able to help you avoid probate, delay or reduce taxes and protect your assets.

Can surviving spouse be trustee of marital trust?

Yes, but naming the surviving spouse, as a Trustee should be done only after reviewing all the facts and counseling with your advisors. In a “first time” marriage where both spouses have great confidence in each other, it is common for the surviving spouse to be designated as a Trustee of the Family and Marital Trusts.

What happens to spousal trust When spouse dies?

The surviving spouse is entitled to receive all of the income earned by the testamentary spousal trust during their lifetime. No other person is entitled to receive or otherwise obtain the use of any of the income or capital of the trust during the surviving spouse's lifetime.

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.

Do assets in a marital trust 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.

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.

How does a trust work for a married couple?

In a simple living trust, a couple can share the control and benefits of the trust while they are living. Once one spouse dies, the other spouse will have total control over the trust. After one spouse's death, the survivor can alter the beneficiaries if they wish.

What type of trust qualifies for a marital deduction?

A marital deduction trust can take one of two forms, either a life estate coupled with a general power of appointment given to the spouse or a Qualified Terminable Interest Property (QTIP) trust.

What is an exempt marital trust?

Key Takeaways. An exemption trust helps to reduce a married couple's estate taxes by placing their assets in a trust after the first member of the couple dies. Exemption trusts are established as irrevocable trusts so they cannot be changed or invalidated without the permission of the trust beneficiary.

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.

What is the 21 year rule?

Commonly referred to as the “21 year rule,” the rule deems certain types of trusts to dispose of their capital property and recognize the accrued gains every 21 years. Without this rule, trusts could be used to defer the realization of a capital gain for more than 21 years (80 years in BC).

What are the different types of trusts?

The four main types are living, testamentary, revocable and irrevocable trusts. However, there are further subcategories with a range of terms and potential benefits. Here are some of the different types of trusts that are commonly used in estate planning.

Can a spousal trust be a graduated rate estate?

1.7 A spouse trust cannot be a graduated rate estate. Only an estate can be a graduated rate estate pursuant to the definition of a graduated rate estate in subsection 248(1).

What is the net income of a marital trust?

Net income includes the interest, dividends, rents, business income, income from other trusts or estates, and state tax refunds. The terms of the trust dictate whether the surviving spouse is entitled to receive or use any of the principal from the trust.

Is a family trust worth it?

Family trusts can be beneficial for protecting vulnerable beneficiaries who may make unwise spending decisions if they controlled assets in their own name. A spendthrift child, or a child with a gambling addiction can have access to income but no access to a large capital sum that could be quickly spent.

Who owns the assets in a family trust?

The trustee can be an individual, individuals or a company and they are the legal entity who owns the assets and makes decisions on the trust's behalf. There can be more than one trustee and more than one beneficiary.

At what net worth do I need a trust?

Here's a good rule of thumb: If you have a net worth of at least $100,000 and have a substantial amount of assets in real estate, or have very specific instructions on how and when you want your estate to be distributed among your heirs after you die, then a trust could be for you.

Can a family trust be broken?

Typically, the only way to “break” a trust is when the creator of that trusts makes to decision to dissolve the trust. If you have established a living trust for your benefit and the benefit of your beneficiaries and heirs after your death, the heirs and beneficiaries cannot break your trust.

Are family trusts taxable?

Typically, the trust itself or its beneficiaries pay tax on taxable income. Income kept in the trust is paid on a trust tax return using Form 1041. Income distributed to beneficiaries is reported to the beneficiaries by the trust using Form K-1.