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Living Trust 101: Marital Split Trust

  • October 7th, 2014
  • Katherine Becker
Living Trust 101: Marital Split Trust

In the first two posts of our three-part series on living trusts, we shared information about the Traditional AB Trust or QTIP Trust, and about the Disclaimer or Flex Trust. As we wrote in those posts, living trusts help protect your family members after your death. They help facilitate the avoidance of probate and some taxes, provides a way to choose beneficiaries, and allow you to easily make changes to your estate planning when circumstances change. In this final post, we will examine the last basic type of living trust that a married couple with children might choose to use in their estate planning.

Type # 3 – Marital Split Trust
Many couples do not need an AB Trust to avoid Death Taxes, but like the AB Trust because it does not allow the surviving spouse to change the beneficiaries of the B Trust. For such couples, a Marital Split Trust is a good choice because a Marital Split Trust is like a Flex or Disclaimer Trust as to its tax attributes, but does not allow the surviving spouse to change the beneficiaries as to the deceased spouse’s half of the assets.

A Marital Split Trust provides that at the time of the death of the first spouse to die, the assets are split into two halves, and one half is placed into a “Survivor’s Trust”, and the other half is placed into a “Marital Trust”. The surviving spouse may change the beneficiaries of the Survivor’s Trust, but not the Marital Trust. When the surviving spouse dies, the assets of both the Survivor’s Trust and the Marital Trust are treated as assets of the surviving spouse’s estate, thus obtaining a step-up in basis as to all of the Trust assets.

Example
Assume that at the time of the death of the first spouse to die, the threshold for Death Taxes is $5,000,000, the couple has total assets of less than $1,000,000 and using an AB or QTIP Trust is not necessary to avoid Death Taxes. The assets would be allocated one half to the Survivor’s Trust and one half to the Marital Trust. 10 years later, the surviving spouse remarries and names the new spouse as the beneficiary of the Survivor’s Trust assets, but cannot change the beneficiary of the Marital Trust assets. At the time of the surviving Spouse’s death, the assets in both the Survivor’s Trust and the Marital Trust will receive a step-up in basis, thus eliminating income taxes on all of the appreciation in the assets from the time of the death of the first spouse to die. The children remain the beneficiaries of the assets of the Marital Trust, and the new spouse is the beneficiary of the assets of the Survivor’s Trust.

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