What Is a Marital Trust? Here’s What You Should Know When Estate Planning
Written by
Adam Palasciano
Edited by
Nicholas Morine
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Planning your financial future well in advance is crucial to avoid money issues down the line. Creating a trust is prudent in order to protect your assets and ensure that your money goes to the right people after you pass.
If you’re married, you’ll want to consider forming a marital trust.
What Is a Marital Trust?
Forbes defined a marital trust as an irrevocable trust that lets you transfer a deceased spouse’s assets to the surviving spouse without incurring any taxes. The trust also protects assets from creditors and future spouses the surviving spouse may encounter.
One other important benefit is that once your spouse also passes, the assets in the marital trust are not included in their estate. The benefit of this? The taxes on their estate will be kept lower for the next of kin.
Martial trusts are particularly important for wealthy and high-net-worth individuals (HNWIs) looking to protect their assets from being taxed.
It’s important to note that there are three parties involved in setting up, maintaining, and passing along the trust:
- The Grantor: The person who initially establishes the trust.
- Trustee: The person or organization that manages the trust and its assets.
- The Beneficiary: The person who will eventually receive the assets in the trust once the grantor dies (the surviving spouse).
The principal refers to the assets initially put into the trust. These assets are typically investments that generate income for the beneficiary over time.
Why Do Marital Trusts Matter?
In a nutshell, marital trusts matter if you’re looking to keep your wealth within the family after your passing — and if you’re looking to shield your wealth from outsiders, such as new spouses or creditors. The marital trust can contain a variety of assets, including investment accounts, retirement accounts and even properties.
Pros and Cons of a Marital Trust
Here are some pros and cons of a marital trust to consider beforehand:
Pros
- You’ll keep assets within the family.
- You’ll provide financial stability to the remaining beneficiaries once the surviving spouse dies.
- You’ll provide income and financial stability to your spouse after you pass.
- You’ll effectively protect assets from creditors and potential new spouses.
- You’ll double your estate tax exemption amount to $24.12 million.
Cons
- You’ll be required to transfer assets into the trust, which is often a lengthy process.
- Marital trusts are irrevocable trusts — which means that once they’re established, it’s extremely difficult to dissolve them or change their terms.
- Marital trusts only offer up to $24.12 million in estate tax exemption.
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