Trustees Must Understand Marital Trusts During Administration

If your loved one creates an estate plan involving a revocable trust with his or her spouse, you may be asked to serve as a successor trustee after the first spouse dies. This is an important role to fill as some of the decisions relating to administering the trust can impact the tax consequences that occur after the first spouse’s death. Many, if not most, successor trustees have never encountered this type of trust in the past, unless the successor trustee is an experienced trust administrator. Therefore, it’s crucial for trustees to learn more about the unique traits relating to this type of trust.

8 Facts About Marital Deduction Trusts

The following are eight facts about marital deduction trusts:

  1. You may be asked to serve as the successor trustee alone, jointly with someone else, or jointly with the surviving spouse.
  2. With an unlimited marital trust, the surviving spouse can receive the net income generated by the trust. The trust instrument will typically dictate how frequently the income should be paid over to the spouse.
  3. Net income includes the interest, dividends, rents, business income, income from other trusts or estates, and state tax refunds.
  4. The terms of the trust dictate whether the surviving spouse is entitled to receive or use any of the principal from the trust. Some trusts may allow the surviving spouse unlimited access to these assets. Others may be more restrictive, such as dictating that the surviving spouse can receive trust principal only for his or her health, education, maintenance, or support.
  5. When the first spouse dies, estate taxes are not due if the marital deduction trust is drafted properly. Instead, the assets pass to the spouse without tax under the unlimited marital deduction. When the surviving spouse dies, tax is due at that time on the remaining amounts in the trust.
  6. There are many types of marital trusts, including QTIP trusts, disclaimer trusts, Clayton trusts, and bypass or credit shelter trusts.
  7. The marital trust typically contains a power of appointment that allows the surviving spouse to dictate who should receive some or all of the trust assets by including a provision in the spouse’s will.
  8. If the surviving spouse does not exercise the power of appointment, you must follow the directions outlined in the trust about who should receive the trust assets after the surviving spouse dies.

Fortunately, successor trustees are entitled to seek out assistance from an experienced attorney when fulfilling their trust administration responsibilities. We are here to help. We encourage you to check out our client testimonials to learn more.