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Blended family discussing the use of a Marital Trust

Navigating Marital Trusts: Securing Your Spouse’s Financial Future

Understanding marital trusts is crucial for couples looking to secure their financial future and provide for the surviving spouse in a tax-efficient manner, explains Forbes’ article entitled “Guide To Marital Trusts.”  With the potential to safeguard assets and ensure they reach the intended beneficiaries, marital trusts can be an effective part of a comprehensive estate plan particularly for those in a second marriage or a blended family.

What Is a Marital Trust?

A marital trust is a type of irrevocable trust and is crafted to benefit the surviving spouse. It allows for managed distribution of assets, potentially safeguarding against financial imprudence or external influences.

Consider that while many couples are just fine with everything going to the surviving spouse directly and outright after one spouse dies, in some cases, there may be concerns related to the surviving spouse not being able to effectively manage the money.  What would happen to the money if the surviving spouse is not good with money or vulnerable to financial predators and giving everything out right to them would run the risk that all of the money would be spent irresponsibly? A marital trust provides the protections for the couple’s estate and money to prevent these issues from happening.

Watch the following video presented by Attorney Bill O’Leary, Esq. in which he explains the various situations in which a couple might benefit from using a marital trust.

How Is a Marital Trust Created?

There are three parties involved in setting up, maintaining and ultimately passing along the trust, including a grantor, who is the person who establishes the trust; the trustee, who’s the person or organization that manages the trust and its assets; and the beneficiary. That’s the person who will eventually receive the assets in the trust, once the grantor dies.  The surviving spouse must be the sole beneficiary of a marital trust.  Once the surviving spouse dies, the assets in the trust pass to surviving children. A marital trust also involves the principal, which are assets initially put into the trust.

How Do Marital Trusts Protect Blended Families?

For blended families, using a marital trust is becoming more popular as a means of passing assets to a surviving spouse and protecting the inheritance of children from previous marriages. If one or both spouses in a second marriage have children from a prior marriage, both spouses typically want to make sure that their kids get an inheritance at some point in the future.   While most married couples prioritize their spouse as the primary beneficiary, after the surviving spouse passes away, if the couple’s estate plan gives everything directly to the surviving spouse,  that arrangement would run the risk that the children from a prior marriage of the deceased spouse would be cut off from receiving an inheritance.  While couples want to assume that a surviving spouse will protect the rights of children from their spouse’s previous marriage, without legal safeguards, the estate of the surviving spouse can be changed to cut out individuals named as beneficiaries after their spouse’s death. Having a marital trust for the surviving spouse ensures this type of change can’t happen.

Read more in our article, How Children in Blended Families Get Disinherited

What Are Other Situations in Which a Couple Should Consider Using a Marital Trust?

Additional situations in which a couple might consider using a marital trust include wanting to prevent undue influence of an outside person or party over the surviving spouse.  This usually is a concern for older couples when the surviving spouse is in declining health or may have early onset of dementia, and there’s a concern they may be vulnerable to being taken advantage of financially.  Another motivations for a marital trust includes a spouse who has an addiction that prevents them from making sound financial choices.

What Are the Benefits of Having a Marital Trust?

  • Marital trusts are also significant in estate planning for high net worth individuals serving as a tool to minimize the estate tax burden by taking advantage of estate tax exemptions. By utilizing a marital trust, a married couple can greatly reduce or eliminate estate taxes.
  • The surviving spouse can receive income and financial stability from the trust.
  • Assets are kept in the family and the inheritance intended for children from previous marriages is protected.

Estate Tax Exemptions with a Marital Trust

One of the most significant benefits of a marital trust is its impact on estate taxes. A marital trust effectively doubles the estate tax exemption for a married couple, ensuring a larger portion of their wealth can be transferred tax-free. In the context of the federal estate tax, this can result in substantial tax savings and financial security for the surviving spouse and any other designated beneficiaries.

The Unlimited Marital Deduction in Action

The unlimited marital deduction is a cornerstone of marital trust planning. It allows the first spouse to pass assets to the surviving spouse without incurring estate taxes at the time of the first spouse’s death. This deduction is a critical aspect of marital trusts, ensuring that the income to the surviving spouse provides the necessary financial support without an immediate tax burden.

Are There Disadvantages of Using a Marital Trust?

While a marital trust offers many benefits, it’s essential to consider any limitations or drawbacks, such as loss of flexibility once established.

  • Once established, an irrevocable trust cannot be easily altered or terminated.
  • Estate tax exemption is limited based on the federal estate tax threshold.
  • Marital trusts, like other types of trusts, require that assets be moved into the trust; a process that can be  lengthy or overlooked.

Establishing a Marital Trust with an Experienced Florida Estate Planning Attorney

Setting up a marital trust is a complicated form of estate planning that involves several steps, including choosing a trustee to manage the trust assets, determining the terms under which the trust assets will be managed and distributed, and ensuring that the couple’s property is transferred to the trust. When couples have complex family situations including blended families or a spouse with vulnerabilities, a marital trust provides for the financial well-being of the surviving spouse and ensures that assets are preserved for future generations.

By working with an experienced estate planning attorney, like Bill O’Leary, who uses careful planning and consideration of a family’s unique financial landscape, a couple can assess whether a marital trust should be part of their a comprehensive estate plan. If you have questions about using a marital trust in your Florida estate plan, schedule a free call with our office.

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