What is a “Marital Deduction Trust” and How Is it Used: A trust structured to receive property that will qualify for the marital deduction. The marital deduction is a feature of federal estate tax law that helps delay estate taxes until both spouses have died. It is available only to married couples, and then only upon the first death. Under the Marital Deduction, a spouse can transfer an UNLIMITED amount of assets to a surviving spouse FREE of any federal estate taxation. The taxes are not eliminated they are just DEFERRED until the death of the surviving spouse and then the assets are taxed in the surviving spouse’s estate.
Trusts that use marital deduction trusts for estate planning purposes typically divide after the decedent’s death into two parts: one part holds the amount of assets that is sheltered by the decedent’s available estate tax exclusion amount (often referred to as a “credit shelter trust”); and anything OVER AND ABOVE THAT amount is used to fund the marital trust. The decedent’s surviving spouse may be a beneficiary of the credit shelter trust, but may not have unlimited control over that trust, because too much control would lead to the inclusion of the assets of the credit shelter trust in the surviving spouse’s estate. Following the death of the surviving spouse, the assets in the credit shelter trust will pass without estate tax to the remainder beneficiaries of that trust. The assets in the marital trust, if any, will be subject to estate tax in the surviving spouse’s estate. After payment of estate tax, the remaining assets of the marital trust will pass to the remainder beneficiaries designated by the first decedent-spouse, or in accordance with a power of appointment exercised by the surviving spouse.
