Marital Trust (A-Trust)

Definition

The term marital trust refers to an agreement that allows the donor to provide for both their spouse as well as their children.  Marital trusts are oftentimes used to ensure the donor's assets are inherited by children, and not claimed by another party in the event a spouse remarries.

Explanation

Also referred to as an A-trust, a marital trust is usually established at the time of the donor's death, and is used to distribute assets in excess of federal estate tax exemption thresholds.  Married individuals can provide unlimited assets to each other during their lives or after their death.  Marital trusts are eligible for this unlimited marital deduction if the surviving spouse is the sole beneficiary of the trust, and the trust provides the spouse with a potential source of lifetime income.

Generally, marital trusts take one of the following forms:

  • General Power of Appointment:  created for the sole benefit of the surviving spouse, providing them with a source of lifetime income.  This type of marital trust also allows the surviving spouse to determine how the trust's assets are distributed after their death.
  • Estate:  provides the surviving spouse with a source of lifetime income, and this type of trust provides for discretionary distributions of corpus too.  The assets remaining in the trust after the surviving spouse's death are passed on to children or heirs as directed by the donor.
  • Qualified Terminable Interest Property: provides the surviving spouse with a source of lifetime income, payable at least once per year.  The assets remaining in the trust after the surviving spouse's death are passed on to children or heirs as directed by the donor.

If there are assets in the trust when the surviving spouse passes away, marital trusts will distribute them as directed by the donor; typically, this would be to surviving children.  Since these assets were not subject to federal income taxes following the death of the donor, they are subject to taxes when the surviving spouse passes away.

Related Terms

irrevocable income-only trust, credit shelter trust, charitable remainder trust, bypass trust