Marital trust: Ensure a secure future for your spouse
Like other types of trust, a marital trust includes a settlor (person who creates the trust) and a trustee (person who manages the assets). But marital trusts have other specific features that don’t apply to other types, such as being able to take advantage of the unlimited marital deduction.
Why would we need a marital trust?
You and your spouse have spent a lifetime building your estate. When planning for the time after the first spouse passes, there are several options, including a will or a marital trust. While both can help ensure that existing assets are transferred to a surviving spouse, a trust offers several advantages, including bypassing probate court as well as potential tax deferrals and savings.
Marital trusts are not a one-size-fits-all estate planning solution, and there are also several types.
3 common types of Michigan marital trust
Marital deduction trust: Also known as an A Trust, this type is designed to hold assets solely for the benefit of the surviving spouse, and it leverages the unlimited marital deduction. The federal government allows for an unlimited amount that you can leave to your spouse without estate taxation at the time of your death. This means that during the surviving spouse’s lifetime, no estate taxes need to be paid on any assets that remain in the trust, regardless of their value. These are instead deferred until after the surviving spouse’s death. For the trust to be valid, the surviving spouse must be the sole beneficiary and a U.S. citizen.
Bypass trust: Also known as a credit shelter trust or A/B trust, this is actually two trusts in one. Upon the death of the first spouse, both an A trust and a B trust are activated. Collectively, these allow the surviving spouse to benefit from the trust assets during their lifetime, while also providing a vehicle to pass the remaining assets on to children or other beneficiaries after the death of the surviving spouse. This type of trust may be a good option for couples who have a high net worth that exceeds the federal estate tax exemption – given that this double trust approach preserves both spouse’s exemptions.
Qualified terminable interest property (QTIP) trust: In this type, the surviving spouse benefits from income generated by the trust during their lifetime, but the actual beneficiary is a child or someone other than the surviving spouse. This type of trust may be a good option for specific situations, such as blended families where there are children from a previous marriage.
Other considerations for a marital trust
Flexibility: The specific type of marital trust can help to determine who receives the assets, when and how.
Taxes: The type of trust and how it’s structured also helps determine the potential estate taxes that may be owed, and when.
Asset protection: Placing assets in a trust can protect them from any creditors or legal judgments that affect the surviving spouse, given that these assets are not part of the spouse’s estate.
Eligibility for government benefits: For spouses who may need government assistance, such as Medicaid, a marital trust can help. Assets that are within the trust are not considered part of the surviving spouse’s estate for eligibility purposes – preserving access to essential government programs while maintaining the trust's financial integrity.
Is a trust right for you?
The decision to establish a marital trust should be informed by your estate planning goals and estate planning laws, which can change over time. It requires a careful balancing of immediate financial security for your spouse with long-term considerations, such as tax implications.
An experienced estate planning attorney can help you navigate these complexities, ensuring that if you do choose to set up a trust it aligns with your estate planning goals and offers the maximum benefit to your spouse or other beneficiaries.
Call (810) 207-6670 or complete our online form to request a free phone consultation.
Buzz Suuppi
Buzz started The Plan Firm for his family, which is everything to him. Every member of his team is committed to providing effective estate planning and related solutions for families in St. Clair County, Michigan.