Marriage Deduction Trust

Most marriage-oriented trusts postpone payment of estate taxes until both spouses in a marriage have died. A marital deduction trust allows you to put property in trust with your spouse as the beneficiary. Upon your death, your spouse has the right to use the property in the trust.

No matter how valuable the property in the trust is even if it exceeds that year’s federal estate tax exemption amount, your spouse won’t owe any federal estate taxes. When your spouse dies, any leftover amount transfers to the beneficiaries that your spouse determined.

One of the more popular uses for all trusts is to buy time on paying any applicable estate taxes until both spouses have died, or to skip over your spouse for purposes of transferring property but still your spouse the right to income from a trust. QTIP trusts and bypass trusts enable you to tailor your trust arrangements with your personal needs.

Satisfaction of Marital Deduction Distributions. When distributing the Deceased Settlor’s property due to the Deceased Settlor’s death, the trustee, to the extent possible, shall use property qualifying for the federal estate tax marital deduction in making distributions to the Surviving Settlor or to the Survivor’s Trust, any QTIP Trust, or other trust that otherwise qualifies for the federal estate tax marital deduction.

An annuity will generally qualify for the marital deduction if (1) no benefit or refund will be paid to anyone after the surviving spouse’s death or (2) any benefit or refund is subject to a general power of appointment held by the surviving spouse.

Tax payment clauses in some wills reduce the value of the spouse’s interest in marital deductionproperty. If the clause imposes the burden of estate taxes on property interests passing to the surviving spouse, the portion of the property used to pay the tax does not pass to the surviving spouse and thereby reduces the marital deduction. This may result in a lower net amount passing to the spouse, a lower marital deduction, and an increase in estate tax. An instruction to pay the taxes out of the residue may have this effect.