"Beneficiary trust" is the general term for a fiduciary relationship in which a trustee manages property for a beneficiary. There are many different types of beneficiary trusts. A marital trust, also known as a marital deduction trust, is one type of beneficiary trust designed to protect the assets of a surviving spouse. The beneficiary of a marital trust is the surviving spouse. If a married person establishes a marital trust, his assets move into this trust upon his death for the benefit and use of the surviving spouse.
As one type of a beneficiary trust, a marital trust is designed to protect a surviving spouse from the loss of marital assets.
Defining Beneficiary Trusts
The person who creates a beneficiary trust is called a settlor. To create the trust, the settlor transfers the property to a trustee, who will own and manage the property. But the trustee doesn't act on his own behalf; instead, he manages the property for the benefit of someone the settlor has chosen as a beneficiary.
The trustee can't benefit, either directly or indirectly, from the trust. All actions he takes must be for the beneficiary. The details of state trust law vary, but all states demand that the trustee manage the trust property in a sensible manner, making no risky investments.
Exploring the Benefits of a Trust
There are several reasons to create a beneficiary trust. The first is estate planning. Because the legal transfer of property into a trust is a lifetime, rather than post-death, transfer, the trust need not go through probate. Depending on the trust, the assets may also be exempted from estate taxation.
But a trust may also allow the settlor to plan for her own mental or legal incapacity. The settlor will have the comfort of knowing that, should she lose her ability to make decisions regarding the property, her property will be in the hands of someone capable of making those decisions for her.
The Basics of Marital Trusts
Federal tax law offers a marital estate tax deduction when one spouse dies. Marital trusts can take advantage of this deduction to provide against the death of a spouse, giving the surviving spouse assets to live on. Marital trusts may be established during both spouses' lifetimes and remain revocable at time before their deaths, or they can be created by the spouses' wills and only become legally operative when one spouse dies.
To qualify for the marital deduction, the surviving spouse must be the only beneficiary for all property in the trust.
Marital Trust Types
In the typical marital trust, known as a Qualified Terminable Interest Property Trust, two spouses create the trust together. At the death of one spouse, the other spouse becomes the beneficiary of the trust, with the right to use and enjoy the assets for the rest of his life.
He also has the right to select a secondary beneficiary to receive the remaining assets - there may be none - when he dies. A second type of marital trust is the Qualified Domestic Trust -- a QDT-- which is designed to create the same benefits when one spouse is not a citizen of the United States.