When one spouse dies, property left to the survivor generally passes free of federal estate tax under the unlimited marital deduction. A marital trust captures that treatment while keeping the assets in a managed structure instead of handing them over outright.
To qualify, the surviving spouse must have a defined level of benefit, typically all income from the trust for life, with the trust unavailable to anyone else during their lifetime. Beyond that baseline, the terms can vary considerably: some grant broad power to withdraw principal or direct where the assets go at death, others restrict access tightly.
The deduction defers rather than eliminates. Whatever remains in a qualifying marital trust is generally included in the surviving spouse's estate when they die, and taxed then if the estate exceeds the exemption in force at that time. This is why marital trusts are usually paired with a bypass trust, which absorbs an amount at the first death that will not be taxed again.
In the classic A-B arrangement, the marital trust is the A share and the bypass trust the B share. Which assets flow into which, and in what proportion, is set by a formula in the document. Older formulas written under much lower exemptions can produce results nobody now intends, so periodic review is worthwhile.
Frequently asked
- How is a marital trust different from a QTIP?
- A QTIP is one kind of marital trust, distinguished by who controls the remainder. In a general power of appointment marital trust, the surviving spouse can direct where the assets go at their death. In a QTIP, you fix the remainder beneficiaries and the survivor cannot change them, which is why QTIPs dominate in second marriages. Both qualify for the marital deduction; they differ on how much power the survivor holds.
- Why not just leave everything to my spouse outright?
- For many couples that is the right answer, and it is simpler. A trust earns its place where you want the remainder protected in a blended family, where the survivor would benefit from professional management, where creditor or remarriage risk is real, or where the estate is large enough that shelter planning at the first death still matters. Where none of those apply, outright transfer avoids years of administration.
- Is the trust taxed while my spouse is alive?
- It files its own returns and reports income, though income distributed to the surviving spouse is generally taxed to them rather than to the trust. The estate tax consequence lands later: qualifying marital trust assets are usually included in the survivor's estate at their death. Trust income taxation is technical and the applicable brackets are compressed, so ongoing filings should be handled by a tax professional.