Marrying a person is devoting your love and life to your spouse. Therefore, creating marital trust is one way to continue showing your affection to your wife or husband even if you pass away into this world. The same is true with your children, whether from the same or another marriage.
What Is A Marital Trust?
A marital trust or ‘A’ trust refers to an irrevocable trust designed to hold a couple’s assets, such as cash, life insurance, stocks, and real estate.
The trust assets are transferrable to the surviving wife or husband when a spouse dies without tax penalties. Moreover, a marital trust can be combined with estate tax exemptions and the federal gift, which preserves the surviving spouse’s estate, and beneficiaries can obtain more from the assets.
This article explains the benefits of creating marital trust. Read on below.
1. Provides Tax Benefits
One of the major advantages of creating a marital trust is the tax benefits. As mentioned, the assets in the trust won’t incur federal estate taxes upon transfer to the surviving spouse. Therefore, a marital trust can save your wife or husband a hefty amount of money.
If the surviving spouse dies, exemptions can drastically reduce the number of taxable assets. The estate and federal gift tax exemption is USD$11.4 per individual as of 2019. A couple can combine their exemptions of up to USD$22.8 million that they can pass on to their beneficiaries tax-free.
2. Provides Income For Surviving Spouse
The assets placed in the trust are called the principal. They appreciate in value, like real estate property, stocks, and bonds. The rental income or dividends or shares that these assets generate serve as a source of passive income for the surviving wife or husband.
Beneficiaries earn income from the principal and trust itself. The trustor (established the trust) can assign the trustee (responsible for managing the trust) the power to transfer some assets to the beneficiaries when the need arises, as outlined in the marital trust document.
3. Provides Power To The Surviving Spouse
The trustor can grant power of attorney to their spouse. A marital trust can direct the trustee on properly distributing the assets upon the trustor’s death. The trustor can also limit the amount of money the beneficiary can take out from the trust.
4. Ensures Welfare Of Children From Another Marriage
A special type of martial trust called an officially qualified terminable interest property (QTIP) trust is suitable if the trustor has a child from another marriage. While the surviving spouse is the initial beneficiary, the trustor can outline the beneficiaries, such as his child from another marriage or grandchildren.
The QTIP trust provides more power to the trustor over how his assets will be used in the surviving spouse’s death. The surviving spouse can’t choose the trust’s final beneficiaries and receives only trust income based on the Internal Revenue Service (IRS) laws.
For instance, if the surviving wife or husband remarries, the QTIP trust ensures that the principal or assets aren’t transferable to the new spouse. Instead, only the beneficiaries specified in the marital trust document can benefit from the assets.
5. Provides Protection From Creditors
Because marital trust is a type of irrevocable trust, it provides asset protection against creditors. There’s a lesser risk of losing assets in the event of debt collection or lawsuit with QTIP trust because it restricts the surviving spouse to only receiving income.
In addition, the assets aren’t countable toward the resource limits of federal-funded health insurance, Medicaid. For this reason, marital trust can help qualify the surviving spouse for long-term care if their income falls below the eligibility requirements.
6. Protects Against Poor Financial Decisions
Protect your family’s financial future by creating marital trust. This arrangement can help ensure that your spouse and children have money to spend to live a comfortable life and avoid bankruptcy caused by poor decision-making, scams, and fraud.
A marital trust protects assets from financial predators. Because the surviving spouse only receives a limited income stream, there’s less money susceptible to potential scams. Moreover, the trust protects the beneficiary from unwise spending habits.
Create marital trust to demonstrate your love for your spouse. They are flexible and are designed to bypass these issues effectively. It’s a great way to protect your wealth that you can pass on to your children and other beneficiaries.
When creating a marital trust, make sure to seek the help of an estate planning lawyer to ensure the completeness and validity of the document.