Attorney Kellen Bryant explains the key differences between marital trusts and family trusts, including their purposes, access rights, and estate tax implications.
When planning estates for married couples, especially those with significant assets, understanding the difference between marital trusts and family trusts is crucial. These two types of trusts serve different purposes and provide different benefits for surviving spouses and children.
Marital Trust: For the Surviving Spouse
Generally speaking, a marital trust is a specific allocation to the surviving spouse without too many strings attached.
Key Characteristics of Marital Trusts
- Primary beneficiary – The surviving spouse
- Flexible access – Fewer restrictions on distributions
- Immediate benefit – Designed for the spouse’s current needs
- Tax advantages – Often qualifies for unlimited marital deduction
- Straightforward structure – Less complex than family trusts
Access and Control Rights
The surviving spouse will have more rights and ability to withdraw principal as it relates to the marital trust.
Typical marital trust provisions include:
- Income distributions – Usually all income goes to the surviving spouse
- Principal access – Liberal access to trust principal for needs
- Discretionary distributions – For health, education, maintenance, and support
- Broad withdrawal powers – Sometimes including general power of appointment
- Administrative control – May serve as trustee or co-trustee
Family Trust: For the Children
The family trust is more intended for the living children of the spouse who died first.
Primary Purpose and Beneficiaries
- Ultimate beneficiaries – The children of the first spouse to die
- Long-term preservation – Protects inheritance for the next generation
- Asset protection – Shields assets from potential claims
- Controlled distributions – More structured approach to access
The “Last Resort” Nature
Usually, the family trust is the money used as a last resort.
This means:
- Secondary access – Used after marital trust resources
- Stricter distribution standards – Higher threshold for access
- Preservation focus – Emphasis on keeping assets intact
- Emergency needs – Available for significant financial needs
- Children’s inheritance protection – Ensures assets pass to intended beneficiaries
Estate Tax Advantages: The Key Difference
The last difference would be that the family trust is usually set up to preserve the exemption of the estate taxes for the first spouse who passes away.
How Estate Tax Exemptions Work
Understanding estate tax exemptions is crucial:
- Each person gets a federal estate tax exemption (currently over $12 million in 2024)
- Married couples can potentially use both exemptions
- Without planning – You might lose the first spouse’s exemption
- With proper planning – Both exemptions can be preserved
The Problem Without Family Trusts
So that the family can utilize the exemptions of both spouses rather than just the surviving spouse’s. The surviving spouse would just get their one exemption.
Without a family trust:
- First spouse’s exemption might be wasted
- Assets pass entirely to surviving spouse
- Only one exemption available at surviving spouse’s death
- Higher potential tax liability for the family
- Missed tax planning opportunities
The Solution: Family Trust as Tax Shelter
The family trust finally is used as the legal tax shelter to preserve the estate tax exemption upon death of the surviving spouse.
How the family trust preserves exemptions:
- Uses first spouse’s exemption – Assets equal to exemption amount go into family trust
- Removes growth from estate – Future appreciation occurs outside surviving spouse’s estate
- Preserves both exemptions – Both spouses’ exemptions are utilized
- Reduces overall tax burden – Minimizes estate taxes on family wealth
- Protects children’s inheritance – Ensures maximum transfer to next generation
How These Trusts Work Together
Marital and family trusts are often used together in comprehensive estate plans:
Typical Structure
| Trust Type | Primary Beneficiary | Access Level | Tax Purpose |
|---|---|---|---|
| Marital Trust | Surviving spouse | Liberal access to income and principal | Qualifies for marital deduction |
| Family Trust | Children (ultimately) | Restricted – “last resort” basis | Uses first spouse’s exemption |
Distribution Priority
- Marital Trust first – Surviving spouse’s primary resource
- Family Trust second – When marital trust is insufficient
- Both provide for spouse – But with different access levels
- Children benefit ultimately – From both trusts at surviving spouse’s death
When These Trusts Make Sense
Marital and Family Trusts Are Appropriate For:
- Married couples with substantial assets
- Estates potentially subject to federal estate taxes
- Families wanting to maximize tax exemptions
- Second marriages where spouse wants to protect children’s inheritance
- Asset protection concerns for family wealth
Consider Other Options If:
- Estate is below tax exemption thresholds
- Simplicity is preferred over tax optimization
- No children or heirs to protect
- Complete spousal control is the priority
Practical Considerations
Funding Decisions
- How much goes into each trust? – Often based on exemption amounts
- What types of assets? – Growth assets often go to family trust
- Income-producing assets – May be better for marital trust
- Future flexibility – Consider ability to adjust allocations
Administrative Complexity
- Two separate trusts – More complex administration
- Tax filings – Separate tax returns may be required
- Investment management – Different investment strategies for each trust
- Distribution decisions – Coordinating between two trusts
Modern Considerations
Recent changes in estate tax law affect these strategies:
- Higher exemptions – Fewer estates subject to federal taxes
- Portability elections – Alternative ways to preserve exemptions
- State estate taxes – Some states have lower exemption thresholds
- Income tax considerations – Step-up in basis implications
The Bottom Line
The main differences between marital trusts and family trusts center on their primary beneficiaries, access restrictions, and estate tax purposes. Marital trusts provide flexible benefits for surviving spouses, while family trusts preserve estate tax exemptions and protect inheritances for children.
These trusts work together to provide comprehensive estate planning that balances the surviving spouse’s needs with tax efficiency and inheritance protection. However, they add complexity and may not be necessary for all families, especially with current high estate tax exemptions.
Put your mind at ease and make an appointment to meet with the Berg Bryant Elder Law Group in Jacksonville, Florida today to determine whether marital and family trusts are appropriate for your estate planning goals.
This information is provided by Attorney Kellen Bryant. For personalized guidance about marital trusts, family trusts, and estate tax planning strategies, consult with a qualified estate planning attorney.
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Author Bio
Kellen Bryant, Esq.
Founder
Florida Bar Board Certified Elder Law Attorney, Kellen Bryant focuses his law practice on advising and helping caregivers with a particular focus on asset protection and preservation from long-term care costs, creditors, and predators. Kellen Bryant is AV Preeminent® Rated, meaning his attorney peers rated him at the highest level of professional excellence. Kellen Bryant was nominated and selected as a Super Lawyer, Rising Star: 2022.
