What is the difference between marital trust and family trust

If a married couple chooses to create martial trust, or A trust, they must include the appropriate marital trust language in their will or revocable living trust. The couple divides their assets evenly in their names or the name of the revocable living trust. Do not leave the marital assets in joint accounts, as these assets pass outside the trust. 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. If any assets exceed the exemption, those assets are taxed as part of the second spouse's estate. Any assets remaining after the tax bill is paid pass to the beneficiaries of the marital trust. The beneficiaries of the marital trust may be the same or different than those of the family trust.

You can create either a family trust, a marital trust, or both by directing their creation in your will, or you can establish a revocable living trust to create them at your death. Your revocable trust might make some bequests from its assets when you die, reserving other assets that it then uses to fund a marital trust, a family trust, or both. Saving taxes with marital and family trusts involves funding them according to the federal estate tax exemption — the portion of an estate's value upon which no taxes are due.

It also means taking advantage of the marital deduction. If you do, both trusts avoid a maximum amount of taxation. The marital deduction allows you to leave unlimited assets to your spouse tax-free. 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. If the balance between a family and marital trust sounds too good to be true, that's because it sometimes is. The assets you transfer to the marital trust only escape taxation when you die due to the marital deduction. These can fall victim to estate taxes later when your spouse dies if the assets exceed the value of the estate tax exemption at that time.

Hear about us on Radio or TV? Client Access. Request a Meeting. Resource Library Search. Share This. Here is a basic summary of four common spousal trusts: 1.

A Trust or Marital Trust A marital trust is a specific type of trust established for the benefit of a surviving spouse. B Trust Bypass Trust B Trusts also called family trusts or credit shelter trusts work a little differently but are often used in concert with A Trusts—meaning oftentimes, when a spouse sets up an A Trust, they also set up a B Trust.

Other Kinds of Trusts As previously mentioned, there are myriad types of trusts that serve many purposes. Topics Tax Strategies , Estate Planning. Related Posts Article. AB Trusts can be tricky to fully comprehend, as they dive into the minutiae of Estate Planning law.

The following commonly asked questions should help further your understanding of AB Trusts and allow you to determine if this option is right for you and your spouse:. AB Trusts are not entirely obsolete, though they are much less useful than they once were because of changes in estate law over time. An AB Trust is revocable until one spouse in a married couple dies. At that point, part of the assets are put into a revocable Trust for the surviving spouse; while the other portion goes into an irrevocable Trust on behalf of the deceased spouse.

The A portion of the AB Trust is the revocable part for the spouse and the B portion is the irrevocable part. The Marital Trust is another name for the Trust being left to the surviving spouse. AB Trust Estate Planning can be most beneficial for couples who live in a state without a portability for exemptions. Essentially, an AB Trust could help these individuals avoid state estate taxes. AB Trusts can also help ensure your beneficiaries are not changed by your spouse after your death.

Similarly, these trusts can help designate where certain assets will go if you need to protect them from your spouse for whatever reason.