What is a marital trust and how does it work?

What is a marital trust and how does it work?

A marital trust is a type of irrevocable trustthat 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 your children. This article will explain how a marital trust works and how you can establish one.

Can a surviving spouse be a beneficiary of a marital trust?

Within the framework of a marital trust, the surviving spouse must be the sole beneficiary who can receive trust assets during his or her lifetime. Trustee: The person, persons or organization that manages trust assets. The trustee transfers property to the beneficiary.

How does a marital trust avoid estate taxes?

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. However, when the surviving spouse dies, the remaining trust assets will be subject to estate taxes.

What is an irrevocable marital trust?

A marital trust is a type of irrevocable trustthat 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 your children.

Do you have to pay estate tax on a marital trust?

In the case of a marital trust, the IRS subjects the remaining trustassets to federal estate taxes when the surviving spouse passes. However, a couple can take advantage of the federal gift and estate tax exemption. This is the amount that you can pass on to heirs before you’d ever owe an actual estate tax.

Are assets in a marital trust subject to estate tax?

Any assets above the exemption are not subject to estate taxes until after the surviving spouse passes away. When the surviving spouse passes away, the surviving spouse still has his or her estate tax exemption. The second exemption is then applied to the assets in the marital trust.

What happens if a marital trust makes ineffective distributions?

If a state court would have determined that the distributions were ineffective and ordered the distributed assets returned to the marital trust, then the marital trust will be deemed to own the distributed assets. The distributed assets consequently would be included in the surviving spouse’s gross estate for federal estate tax purposes.

What Is a Marital Trust and How Does It Work? 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 your children. This article will explain how a marital trust works and how you can establish one.

What is the purpose of marital deduction?

Marital deduction is a type of tax law that allows a person to give assets to his or her spouse with reduced or no tax imposed upon the transfer. Some marital deduction laws even apply to transfers made postmortem. The right to receive property conveys ownership for tax purposes.

What is a non exempt marital trust?

A Residual Trust is one that governs any assets in the residuary of the estate (i.e. any items not specifically devised in the decedent’s will). A Non-GST Exempt Marital Trust: (GST is Generation Skipping Tax.) The marital trust does not allow for avoidance of the generation skipping tax (i.e. the government taxing transfers upon death)

Is a family trust considered marital property in a divorce?

If one divorcing party has an interest in an irrevocable trust, that interest could be considered marital property. If the trust is revocable, this means that the “settlor” “” the person who created the trust “” can revoke the trust or beneficiary’s interest at any time.