Marital Trust

• A marital trust is a financial planning technique that exists in order to prevent paying estate tax on the property. The trust has certain rules, in that the spouse has a right to receive the income from the trust and will have a general power of appointment over the principal of the trust. This means that the surviving spouse has the right to direct through a last will and testament or separate writing where the trust principal will disburse on death. Since the surviving spouse can appoint the trust principal to her estate to satisfy creditors, the value of the marital trust is included in the surviving spouse's estate for estate tax purposes.
  
  

Family Trusts

• A family trust is generally the remainder of a decedent's estate that does not qualify for the marital deduction and is not included in the marital trust. The trust grantor specifies the terms as to which family members can receive funds, and the trustee is responsible for ensuring adherence to the trust terms. The family trust is a tool for passing wealth to subsequent generations and terminates in accordance with the direction of the decedent. A family trust is not included in the surviving spouse's estate, even if the surviving spouse is a beneficiary of the trust.
  
  

Tax Implications

• With the recent changes in estate tax law, the use of marital and family trusts has changed. For example, if a decedent died in 2010 with a last will and testament that directed creation of a marital and family trust, the marital trust would not fund, and all assets transfer to the family trust. This occurs since there was no estate tax for any taxpayer in 2010, and marital trust funding occurs from a complicated formula designed to shelter assets from estate tax. Since there was no estate tax in 2010, the formula would not apply and a marital trust would not fund. Current tax rules have a $5 million exemption before estate tax is due, so the marital and family trust setup will only benefit the wealthiest families at this time.
  
  

Ask for Advice

• The constant changing of tax laws regarding trust and estates make it difficult to stay current with how financial planning for these entities should occur. Before drafting any financial plan involving trusts, it is a good idea to obtain advice from a trust lawyer experienced in this practice area.