Are There Different Types Of Marital Trusts In Florida?

Understanding Marital Trusts in Florida

Marital trusts in Florida are typically shaped by the goals of the individual establishing the trust and the creativity of the drafting attorney. The two most common types are:

• QTIP trusts (Qualified Terminable Interest Property trusts)
• General discretionary trusts for the surviving spouse

In a QTIP trust, the surviving spouse typically lives off the income generated by trust assets, but cannot access the principal for any reason.

By contrast, general discretionary trusts allow the trustee to use trust funds for the surviving spouse’s needs as they arise. These trusts are distinct from family, bypass, or credit shelter trusts, which usually have fewer restrictions. For example, a credit shelter trust is often a “last resort” source of financial support for the surviving spouse.

How Do Bypass Trusts Work?

A bypass trust operates alongside a marital trust, typically as an emergency fund. Upon the first spouse’s death, a decision must be made regarding how much to allocate to the marital trust versus the bypass trust.

These trusts are designed to preserve the estate tax exemption for each spouse. Under federal estate tax law, the bypass trust helps protect assets from estate taxes by using the deceased spouse’s exemption.

Because trusts are taxed at higher income tax rates than individuals, it’s often recommended to distribute income from the bypass trust at least annually. When the surviving spouse passes away, both the marital and bypass trusts are distributed to the remainder beneficiaries.

What Is the Difference Between a Marital Trust and a Family Trust?

Generally, a marital trust is designed to support the surviving spouse with minimal limitations. A family trust, also known as a bypass or credit shelter trust, is intended to benefit the children or other heirs of the first spouse to die.

Key differences include:

• Marital Trust: Offers more flexibility and access to the surviving spouse, especially for withdrawing principal.
• Family Trust: Protects estate tax exemptions and serves as a tax shelter.

The family trust also helps ensure the family can take advantage of both spouses’ estate tax exemptions, rather than just the surviving spouse’s.

Are AB Trusts Obsolete?

Changes to the federal Tax Code in the early 2010s made AB trusts less essential for tax purposes. The surviving spouse can now elect to use both their own and the deceased spouse’s estate tax exemptions.

However, AB trusts still serve important estate planning purposes. For example, if the surviving spouse is not the parent of the deceased spouse’s children, an AB trust can help prevent the accidental disinheritance of those children.

For families with blended dynamics, AB trusts in Florida remain a smart planning tool for protecting bloodline inheritance and ensuring assets are distributed according to the first spouse’s wishes.

Speak With a Florida Estate Planning Attorney

For more information on the different types of marital trusts in Florida, an initial consultation is the best next step. Get the information and legal answers you’re seeking by contacting our firm today.