 Personal Finance PowerPoint Presentation, Marital Trust, prepare to get financially fit by practicing personal finance, support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course, each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Most of this information comes from Investopedia Marital Trust which you can find online. Take a look at the references resources continue your research from there. This by Julia Kagan updated August 15, 2021. In prior presentations we've been looking at estate planning now looking at specific tools that might be used depending on your circumstances within the estate planning process. This time that being the Marital Trust first question, what is a Marital Trust? A Marital Trust is a fiduciary relationship between a trustor and trustee for the benefit of a surviving spouse and the married couple's heirs also called and quote A in quote Trust. A Marital Trust goes into effect when the first spouse dies. In a prior presentation, we went through kind of like the timeline of the estate planning process. Let's kind of recap that and look at some of the wrinkles that could be in there with the married couple that are kind of added to the problems or the issues we want to think about. So before death, of course, the issue would be at the point of death, we want to be able to allocate the assets and in the way that we would like and avoid say taxes estate taxes at that point in time. The typical tool we first think of is a will. But as we've seen in prior presentations, the will still has that complexity that it usually has to go through the probate process, we can't which can be a costly thing. It kind of depends whether or not you want to take added steps to kind of avoid that possibly by making a living trust or say a marital trust that would be one reason to set up some kind of trust to make that process a little bit easier. And then we have this situation where if you have a married couple, you would think the general idea that two individuals are now one individual and therefore you would be one entity. So you would think if one person dies from an estate tax standpoint, for example, they wouldn't get taxed because it would go to the other person that's still living because the two people are kind of like one entity. Now the idea of marriage is a little bit different from state to state from a like a community property state and a non community property state for example. But you can you can think about the general idea then from an estate taxes standpoint. For example, if one married person dies, then in general you would think it would go to the other person and then they wouldn't hit you with the estate tax until the second person dies. You would think that would be the point at time that the estate tax might general be put in place. So you might set up say a marital trust as a component to one be similar to a living trust to help you out through that kind of probate process and two as a piece or a component to help you to avoid estate taxes if your total assets are going to be a high enough that you're going to be subject to estate taxes because what you would like to do is take advantage or maximize the exemptions which you can think of kind of like the deduction like kind of like a standard deduction for estate taxes. You want to make sure that you're maximizing them for both spouses so that at the point in time that the estate taxes hits that you have as much you've taken advantage as much of the of the deduction as possible. So those are some added issues with the married couple. So a marital trust is a fiduciary 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. So when the first spouse dies, you got this marital trust going into effect. You could think of the trust kind of like a corporation in that it's kind of like a separate legal entity, meaning you're putting money into the separate legal entity which has a life in and of itself to some degree, meaning it kind of like owns the assets in a similar relationship or way as a corporation owns the assets. And so when a spouse dies, then the trust will kind of dictate what has happened when the other spouse dies. The trust will help to dictate what has happened because the trust was in effect and has its own kind of life in essence, then you're going to hopefully make it easier than going through kind of like the probate process that might be able to smooth out the process a little bit. Okay, so assets are moved into the trust upon death and the income that these assets generate go to their 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. So after the second spouse dies, then of course, it's going to do what you would expect in like kind of like a will, but it's in the format of a trust and go to the heirs at that point in time, kind of like a will. So you can kind of think about these like a living trust and a marital trust as if it's got a trust kind of component that you're putting together the trust, which is kind of like a separate legal entity and it still has kind of like a will component, because you're still kind of have to dictate what's going to happen at the point in time of death. So 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. So a couple of things that we're doing here, similar to the trust that we saw in a prior presentation, which was the living trust can make it easier to go through that probate process because the entity was in existence before the death happened. And you want to make sure you take full advantage of the unlimited marital deduction, meaning if you're going to get hit with the estate taxes, you want to make sure that the money is going from one spouse to the other spouse without getting hit with a state taxes, which again, you would think that would be kind of like the natural thing to do because there one entity in essence. But again, you want to make sure that you're maximizing your estate taxes and avoiding taxes as much as possible through the marriage and marital deductions there. So 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. So now when the second spouse dies, that's kind of what you would expect. If you're going to get hit with estate taxes now, the whole legal entity, the married couple is now dead. So you would expect that's when they hit you with the estate taxes in general. But again, you want to make sure that you're structured in such a way that they don't hit you with estate taxes, you know, before on one spouse, for example, when the one spouse dies, 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. So the other thing we want to make sure that we're trying to do is maximize the amount of exemptions, which you can think of as kind of like standard deductions for income taxes that you get. So you get an exemption that might be applied per person, you want to make sure that you're maximizing both spouses exemptions when you finally get hit with the estate taxes, if you're going to be subject to estate taxes due to your assets being over a certain threshold. So 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 go to their children instead of the new spouse. So there are three types of marital trust, you got the general power of appointment, a qualified, terminable interest property, the QT IP Q tip trust, and an estate trust, additional types of trusts. And in addition to a marital trust, a family member may set up a personal trust and formally name themselves as the beneficiary. A personal trust can accomplish a variety of objectives for one person or many. For example, it can fund education expenses, meet the special needs of errors, or allow them to avoid or reduce estate taxes. So again, as you're get more money, and you get into planning for estate taxes, that can get more and more complex and different formats of trusts could be put in place in order to try to avoid the estate taxes. Another option is to create a bare trust, a type of trust in which the beneficiary has an absolute right to the capital and assets within the trust as well as any income generated. While a trustee often oversees the investments within a bare trust, the beneficiary has to final say over how the trust's capital or income is distributed. An alimony substitution trust meanwhile is an agreement in which a divorced person agrees to pay spousal support via a trust's generated income. With regard to taxation, the ex spouse responsible for providing payments is not required to pay income taxes on the trust's income, nor qualifies to receive a tax deduction. And there's been some some issues with regards to the alimony payments that have kind of changed recently over the tax laws. So be aware of changes to the tax code when you're thinking about alimony payments and recipients for in that area.