What Is a Marital Trust? – Annapolis and Towson Estate Planning

Marital trusts have multiple benefits for beneficiaries, including asset allocation and tax benefits.  They are worth looking at in your estate plan.

Forbes’ recent article entitled “Guide To Marital Trusts” says that a marital trust is an irrevocable trust that allows you to transfer a deceased spouse’s assets to the surviving spouse without paying any taxes. The trust also protects assets from creditors and future spouses that the surviving spouse may encounter.

When the surviving spouse dies, the assets in the trust are not included as part of their estate. That will keep the taxes on their estate lower.

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 is the person or organization that manages the trust and its assets; and the beneficiary. That is the person who will eventually receive the assets in the trust, once the grantor dies.

A marital trust also involves the principal, which are assets initially put into the trust.

A marital trust doubles the couple’s estate tax exemption limit, especially when almost all assets are owned by one spouse. Estate tax refers to the federal tax that must be paid on someone’s estate after they die. The estate tax limit is how much of an estate will be tax-free. In 2022, the estate tax limit is $12.06 million, which means utilizing a marital trust would essentially double that amount to $24.12 million. Therefore, about $24 million of a couple’s net worth would be shielded from estate taxes by taking advantage of a marital trust.

A marital trust is also beneficial because it can provide income to the surviving spouse, tax-free.

Only a surviving spouse can be a beneficiary of a marital trust. When the surviving spouse dies, the trust will then be passed on to whomever the first spouse’s will or trust governs.

If keeping wealth within your family after you die is important, then a marital trust is an estate planning tool that will make certain that individuals outside of your family do not have access to the wealth. You can put a variety of assets into a marital trust, including property, retirement accounts and investment accounts.

A marital trust is one legal tool to consider using when planning for a blended family.

Reference: Forbes (June 30, 2022) “Guide To Marital Trusts”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Does a Married Couple without Children Need a Will? – Annapolis and Towson Estate Planning

While estate planning for couples with no children seems like it would be very simple, the opposite is almost always the case, according to this informative article titled “Three keys to estate planning for couples without children” from The News-Enterprise.

If there is no last will, intestate succession laws dictate who will receive property.

There are three relatively simple ways for couples to be sure their wishes will be followed, and property distributed as they want.

A secondary level of beneficiaries. Couples do not always die at the same time, although it does happen. For the most part, upon one spouse’s death, assets owned together, including Payable on Death, or POD accounts, remain in the possession of the surviving spouse. If all of the assets are owned jointly, the surviving spouse may be able to avoid probate altogether. However, they should check with an estate planning attorney to be sure their state will accept this.

There should be provisions in the last will, in case of a simultaneous death. This lets the more important provisions focus on the beneficiaries. While property may pass easily outside of probate to the survivor, the same will not be true if property is to pass to beneficiaries. The estate will go through probate.

If at all possible, couples should have the same designated beneficiaries. If the couple intends to leave everything to the surviving spouse, they will need to decide who will receive joint property after both have died.

Last wills for each spouse must be created to work together. Designating separate lists of beneficiaries in each spouse’s last will and testament ultimately results in the marital property being left only to one spouse’s loved ones. The result: the other spouse’s family can end up being disinherited.

One way to address this is to create marital shares of property. Couples generally divide marital property in equal shares, although couples in blended families may choose to use a different fractional share.

For each fractional share, each spouse should write out their own list of beneficiaries, being sure that the total ends up being 100%.

Another point to be determined: will survivors within the group receive a larger share pro rata, or will children of the deceased beneficiaries receive their shares? This needs to be clarified when the estate plan is created to avoid potential problems for beneficiaries.

Beneficiaries could potentially be changed after the death of the first spouse, so if the couple wants to prevent anyone from being disinherited, they can use a revocable living trust. This can lock up the deceased spouse’s shares in a manner to allow the property to remain available for the survivor, but the survivor cannot change beneficiaries for the deceased spouse’s share.

Estate planning for couples with no children can have its own pitfalls, so consult with an experienced estate planning attorney, who will know how to protect all members of the family.

Reference: The News-Enterprise (July 27, 2021) “Three keys to estate planning for couples without children”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

A Trust can Protect Inheritance from Relatives – Annapolis and Towson Estate Planning Attorneys

It is always exciting to watch adult children build their lives and select spouses.  However, even if we adore the person they love, it is wise to prepare to protect our children, says a recent article titled “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer” from Kiplinger.

After all, why would you want the assets and money that you accumulated over a lifetime to pass to any ex-spouse, if a divorce happens?

With the current federal estate tax exemptions still historically high (although that may change in the near future), setting up a trust to protect wealth from federal estate taxes is not the driving force in many estate plans. The bigger concern is how well your children will do, if and when they receive their inheritance.

Some people recognize that their children are simply not up to the task. They worry about potential divorces, or a spendthrift spouse. The answer is estate planning in general, and more specifically, a well-designed trust. By establishing a trust as part of an estate plan, these assets can be protected.

If an adult child receives an inheritance and commingles it with assets owned jointly with their spouse—like a joint bank account—depending upon the state where they live, the inheritance may become a marital asset and subject to marital property division, if the couple divorces.

If the inheritance remains in a trust account, or if the trust funds are used to pay for assets that are only owned in the child’s name, the inherited wealth can be protected. This permits the child to have assets as a financial cushion, if a divorce should happen.

Placing an inheritance in a trust is often done after a first divorce, when the family learns the hard way how combined assets are treated. Wiser still is to have a trust created when the child marries. In that way, there is less of a learning curve (not to mention more assets to preserve).

Here are three typical situations:

Minor children. Children who are 18 or younger cannot inherit assets. However, when they reach the age of majority, they can. A sudden and large inheritance is best placed in the hands of a Trustee, who can guide them to make smart decisions and has the ability to deny requests that may seem entirely reasonable to an 18-year-old, but ridiculous to a more mature adult.

Newlyweds. Most couples are divinely happy in the early years of a marriage. However, when life becomes more complicated, as it inevitably does, the marriage may be tested and might not work out. Setting up a trust after the couple has been together for five or ten years is an option.

Marriage moves into the middle years. After five or ten years, it is likely you will have a clearer understanding of your child’s spouse and how their marriage is faring. If you have any doubts, talk with an estate planning attorney, and set up a trust for your child.

Estate plans should be reviewed every four or five years, as circumstances, relationships and tax laws change. A periodic review with your estate planning attorney allows you to ensure that your estate plan reflects your wishes.

Reference: Kiplinger (April 16, 2021) “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys