When it comes to estate planning, few tools are as powerful—and as misunderstood—as the marital trust. Designed to protect a surviving spouse and minimize estate taxes, a marital trust can be a vital part of a well-crafted estate plan, especially for married couples with significant assets.
At Allenby Law, we focus on creating estate plans that are not only smart and effective but also simplified for your peace of mind. We’ll break down exactly what a marital trust is, how it works, when you might need one, and what benefits and drawbacks to consider—especially for California residents.
What Is a Marital Trust?
A marital trust is a type of irrevocable trust that allows married couples to transfer assets to each other in a way that defers or reduces estate taxes while ensuring the surviving spouse is financially secure.
When one spouse dies, assets placed in the marital trust are transferred to the trust rather than directly to the surviving spouse. The surviving spouse typically becomes the beneficiary of the trust, while a trustee—either an individual or a fiduciary institution—manages the assets according to the terms outlined in the trust document.
Marital trusts are often referred to as:
- A-B Trusts
- QTIP Trusts (Qualified Terminable Interest Property)
- Spousal Trusts
Each type serves a slightly different purpose, but all aim to maximize tax benefits and maintain control over how and when assets are distributed.
How Do Marital Trusts Work?
Let’s look at the process step-by-step:
1. Creation of the Trust
During the couple’s lifetime, a marital trust is created through a revocable living trust or a will. The trust outlines who will be the trustee, how the assets will be managed, and who will receive them when the surviving spouse dies.
2. First Spouse Passes Away
When the first spouse dies, a portion of the estate—often the amount exceeding the federal estate tax exemption—is transferred into the marital trust. This amount can be structured in one of several ways:
- A Trust (Marital Trust): This trust qualifies for the unlimited marital deduction, meaning it defers estate taxes until the second spouse dies.
- B Trust (Bypass or Credit Shelter Trust): This trust is funded up to the estate tax exemption amount and does not qualify for the marital deduction. However, it helps preserve the exemption and shields that amount from estate tax when the second spouse passes.
3. Surviving Spouse Receives Income
The surviving spouse receives income generated by the marital trust’s assets for the rest of their life. In some cases, they may also have access to principal distributions, depending on how the trust is drafted.
4. Final Distribution After Second Death
When the surviving spouse passes away, the remaining assets in the marital trust are distributed to the named beneficiaries (typically children or heirs) and are subject to estate taxes at that point—though the structure often reduces the overall tax burden.
Key Types of Marital Trusts
1. General Marital Trust (A Trust)
This trust allows the surviving spouse to receive income and access principal and qualifies for the unlimited marital deduction. However, the assets will be included in the surviving spouse’s estate.
2. Credit Shelter Trust (B Trust)
Also known as a bypass trust, it uses the deceased spouse’s estate tax exemption and “shelters” assets from future taxation. The surviving spouse may benefit from it during their lifetime but does not own the assets.
3. QTIP Trust (Qualified Terminable Interest Property)
This allows the surviving spouse to receive income for life, but limits access to the trust’s principal. It gives the first spouse control over where the remaining assets go after the surviving spouse dies. This is especially useful in blended families.
Advantages of Marital Trusts
Estate Tax Reduction or Deferral
One of the most important benefits is reducing or deferring federal estate taxes. The marital deduction allows assets to pass to the surviving spouse without immediate taxation, preserving more of the estate for the ultimate beneficiaries.
Protects Children’s Inheritance
Especially in second marriages or blended families, a marital trust ensures that the children of the first spouse to die will eventually inherit assets—even if the surviving spouse remarries or has children from another relationship.
Avoids Probate
When structured properly, marital trusts can avoid the long and public probate process, saving your heirs time, money, and stress.
Continued Asset Management
Having a trustee manage the trust ensures that the surviving spouse receives regular income while protecting the trust principal for future beneficiaries.
Disadvantages and Considerations
Complexity and Legal Costs
Creating and managing a marital trust requires careful drafting, administration, and sometimes even annual tax filings. It’s not a do-it-yourself project.
Irrevocability
In most cases, once the first spouse dies and the trust is funded, it becomes irrevocable—meaning the terms can’t be changed.
Surviving Spouse May Have Limited Access
Depending on the type of trust and how it’s structured, the surviving spouse may have limited access to the principal or be required to request distributions through the trustee.
Still Subject to Estate Tax (Eventually)
Although taxes are deferred, they’re not avoided altogether. Assets remaining in the trust after the surviving spouse dies may still be taxed, depending on the size of the estate and applicable exemptions.
Who Should Consider a Marital Trust?
A marital trust is a smart choice for:
- High-net-worth couples who are near or above the federal estate tax threshold.
- Blended families looking to protect children’s inheritance.
- Couples with business interests or real estate holdings who want structured, long-term planning.
- Married individuals in second marriages who want to provide for a current spouse while preserving assets for children from a prior marriage.
- California homeowners with appreciating real estate, who may want to shield equity from future tax burdens.
In California, where property values are often high and estate tax planning is complex, marital trusts are particularly useful when coordinated with other estate tools like living trusts, irrevocable life insurance trusts (ILITs), or family limited partnerships.
How We Can Help
At Allenby Law, we believe estate planning should be smart, strategic, and easy to understand. Marital trusts are a powerful tool—but only when used in the right context, with expert guidance and careful planning.
Whether you’re concerned about estate taxes, family inheritance, or long-term asset management, we simplify the process and build a plan that reflects your unique family, values, and assets. Based in San Diego, we’ve helped countless California families design forward-thinking estate plans that give peace of mind and lasting protection.
Let’s start the conversation. Reach out for a free consultation to learn if a marital trust is right for you—or explore smarter, simpler alternatives that suit your goals.
