One of the most powerful estate planning tools available to married couples is the Unlimited Marital Deduction.  This is a federal tax law that provides spouses with the ability to distribute unlimited assets to a surviving spouse with out the penalty of estate or gift tax.

A Martial Trust can be used even if the intent is not for all the assets to go solely to the spouse. Assets can be held in a Marital Trust for the benefit of the spouse until their death, then pass to other named beneficiaries and still qualify for the marital deduction.  This is the QTIP trust, discussed below.

A Marital Trust pays all of its income to the surviving spouse. This is a requirement. The spouse may also be entitled to certain amounts of principal upon request. The Grantor (person who created the trust) mat name a trustee (who is not the spouse) and give the trustee  discretion to make distributions to the surviving spouse as the trustee feels appropriate.

There is one other requirement that the Marital Trust must meet; it must be included in the surviving spouse's gross estate when that spouse dies. If the estate of the surviving spouse, including those assets, is large enough, it may be subject to estate taxes. Estate tax is deferred at the time of the first spouse's death, but not avoided altogether.

Qualified Terminable Interest Property (QTIP): Is a special type of marital trust.  The QTIP Trust provides a surviving spouse with income from the trust for the spouse's lifetime. However, unlike other marital trusts, once the surviving spouse dies, the remaining trust assets are passed to those beneficiaries named in the first spouse's will. Thus, an individual may provide financial support for a surviving spouse, but retain control of, or direct, the trust assets after the surviving spouse's death. Upon the death of the surviving spouse, the entire value of the QTIP trust is included in the surviving spouse's gross estate and may be subject to estate taxes. 

Credit Shelter Trusts: A Credit Shelter Trust (also referred to as a Family Trust, By-Pass Trust, or Trust "B" in an "A-B plan") is a valuable tool which helps married couples avoid paying unnecessary estate taxes. It does this by ensuring that the Applicable Exclusion Amounts of both spouses are fully utilized. For 2005 the exclusion amount is $1,500,000 and will gradually increase to $3,500,000 in 2009. In 2010 federal estate taxes will be temporarily repealed. In 2011, the applicable exemption amount will be $1,000,000.

Upon the first spouse's death, no estate taxes will be assessed on the transfer because the amount in the trust equals the applicable exclusion amount, which is the amount that will be protected from estate tax liability by the estate tax credit.

The second portion of the estate will be either given outright to the spouse or placed in a marital trust. The trust will hold the amount of the estate above the applicable exemption amount. The trust property will pass as the surviving spouse directs under a general power of appointment. With the marital trust, on the first spouse's death, no estate taxes will be assessed on the transfer. The marital trust will qualify for the unlimited marital deduction, allowing assets to pass tax-free to the surviving spouse. Upon the second spouse's death, the estate can make full use of the second spouse's available applicable exemption amount, to shelter part of the marital share from estate tax.

Marital Trusts have a number of technical requirements. For marital deduction planning or other estate planning tools consult an attorney at Haas McNeil & Associates, P.A. to ensure compliance with current tax laws and maximum tax savings for your loved ones.