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Making Sense Out of Dollars

Trust Me

Joel Lerner, Columnist
Posted 6/18/21

 

 

Although there are many types of Irrevocable Trusts, the topic is very complicated, (information gathered from Investorpedia) so I thought I would inform you this week and next …

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Making Sense Out of Dollars

Trust Me

Posted

Part 8 of 11

Although there are many types of Irrevocable Trusts, the topic is very complicated, (information gathered from Investorpedia) so I thought I would inform you this week and next briefly on some that are available to fit your personal needs.

What Is a Marital Trust?

A marital trust is a legal relationship between a trustor and trustee for the benefit of a surviving spouse and the married couple’s heirs. Also called an “A” trust, a marital trust goes into effect when the first spouse dies. Assets are moved into the trust upon death and the income that these assets generate go to the surviving spouse - under some arrangements, the surviving spouse can also receive principal payments. When the second spouse dies, the trust passes to its designated heirs. A couple with a marital trust allow their heirs to pay less in estate taxes and avoid probate court.

How a Marital Trust Works

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. To avoid this situation from playing out, a marital trust is sometimes used in conjunction with a credit shelter trust - also called a “B” trust.

An example of when a marital trust might be used is when a couple has children from a previous marriage and wants to pass all property to the surviving spouse upon death, but also provide for their individual children. Should the surviving spouse remarry, a deceased spouse’s assets will then go to their children instead of to the new spouse.

What Is a Qualified Terminable Interest Property (QTIP) Trust?

A qualified terminable interest property (QTIP) trust allows an individual, called the grantor, to leave assets for a surviving spouse and determine how the trust’s assets are split up after the surviving spouse dies. Under a QTIP, income is paid to a surviving spouse, while the balance of the funds is held in trust until that spouse’s death, at which point  it is then paid out to the beneficiaries specified by the grantor. QTIP trusts are put to use in estate planning and are especially useful when beneficiaries exist from a previous marriage - but the grantor dies before a ‘subsequent spouse’ does. With a QTIP, estate tax is not assessed at the point of the first spouse’s death, but is instead determined after the second spouse has passed. 

THOUGHT OF THE WEEK

Other things may change, but we start and end with family.

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