In a trust, the trustee (fiduciary) holds nominal ownership of assets on behalf of the trustor (the person who created the trust) for the benefit of one or multiple beneficiaries. Marital trusts are generally used to protect a married couple’s estate tax exemption and ensure a smooth asset distribution process.
Keep reading to discover the most common types of marital trusts in Florida.
Marital Trusts vs. Family Trusts – Understanding the Difference
In Florida, it is not unusual to find couples that use marital trusts in conjunction with family trusts. With a coordinated distribution plan including these two trust types, the trustor can ensure separate streams of income for a surviving spouse and multiple children.
This approach offers a valuable solution for blended families. The trustor can set up a marital trust to protect the spouse’s interests while creating a family trust to guarantee the distribution of his or her to children of a spouse who died first, for example.
Types of Florida Marital Trusts – The Fundamentals
Depending on the married couple’s needs and the attorney’s creativity, it is possible to craft different types of marital trusts in Florida. The most common types are qualified terminable interest property (QTIP) trusts and general discretionary trusts.
A QTIP trust permits the trustor to give a life estate in a Florida property to his or her spouse without exposing the estate to federal gift taxes.
In such cases, the idea behind the trust is to provide the surviving spouse with a recurrent income derived from the assets held in the trust without making a one-time distribution.
In a general discretionary trust, the beneficiaries named in the trust instrument receive a distribution of income at the trustee’s discretion. The trustee is responsible for determining which beneficiary will receive income from the trust each year.
Please note that the trustee has no full discretion over the assets held in the trust, as he or she must follow the trustor’s instructions laid out in the trust instrument. This type of trust prevents disparity in the income of different beneficiaries and permits income gits at reduced tax rates.
Marital Trusts vs. Bypass Trusts in Florida – Taking a Closer Look
A general discretionary trust may be used in conjunction with a bypass trust. In a bypass trust, the trustor funds the trust with an amount of money set aside specifically for emergency cases.
While the marital trust’s focus is providing for a surviving spouse’s needs, a bypass trust offers a last resort in financial emergencies. Determining which assets must be used to fund each type of trust is a crucial decision.
According to US estate tax law, the funds held within a bypass trust would preserve the estate tax exemption that each spouse is entitled to upon their death, protecting their estate and mitigating the impact of tax liabilities.
In most cases, the ideal method of use for a bypass trust is distributing income from the assets held in the trust annually. Once both the trustor and the surviving spouse die, the bypass trusts and the marital trust can be executed and distributed to the remainder beneficiaries.
Consult with an expert Florida attorney for an individual assessment to identify the best approach for your case.