Setting up a marital living trust lets you and your spouse pass your assets tax-free to your beneficiaries. Husband and wife living trusts use the marital deduction and unified credit to reduce or eliminate asset transfer taxes. With the marital deduction, you can give all of your assets to your surviving spouse tax-free. When your surviving spouse dies, the unified credit offsets the tax so your beneficiaries have no tax liability. At the time of publication, the unified credit amount for each spouse is $5.340 million.
Marital Trust Components
As with other living trusts, husband and wife living trusts must have at least one grantor, one trustee and one beneficiary. You and your spouse can serve together as co-grantors since you both created the trust. The trustee is responsible for holding and managing the trust assets. You and your spouse can also serve as co-trustees. You must put assets into the trust to make the trust a legal document. Your marital trust must name at least one beneficiary who will ultimately receive the trust assets when both grantors are dead.
Joint Living Trust
With a joint revocable living trust, both you and your spouse share control of the trust. You and your spouse serve together as equal co-granters and co-trustees of the marital trust and its assets. Both of you act together when making decisions to add assets to the trust or remove them. If you become unable or unwilling to serve as co-grantor or co-trustee, your spouse takes over as sole grantor and trustee. When one spouse dies, the surviving spouse becomes the sole grantor and sole trustee.
Credit Shelter Trust
If you have a high net worth, a credit shelter trust lets you and your spouse double the amount of tax-free assets you can leave to your beneficiaries. When one spouse dies, the trust splits the assets into a marital share and a family share. The marital share goes directly to the surviving spouse. Your spouse uses your marital deduction to avoid paying tax on the marital share. The family share is set aside in a separate credit shelter trust. When the surviving spouse dies, the family share uses that spouse’s unified credit to pass the assets tax-free to the beneficiaries.
A Qualified Terminable Interest Property Trust, or QTIP Trust, is a marital revocable living trust. It’s used when you have divorced and remarried but have children from a prior marriage. The QTIP Trust uses the marital deduction to pass your assets tax-free to your surviving spouse. However, the assets remain in the trust as trust property. Your surviving spouse has the right to use the assets. When your surviving spouse dies, the trust uses the unified credit to pass the assets tax-free to the beneficiaries you named in your QTIP Trust.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.