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.
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:
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.