What Is It?
Marital Trust Used In Conjunction With Bypass Trust to Minimize Estate Taxes and Provide for Children
Marital trusts, sometimes referred to as "A trusts," are a kind of trust used by married couples, typically in conjunction with bypass trusts, to reduce federal estate tax, enable the surviving spouse to continue to benefit from family wealth, and guarantee that assets end up going to the individuals designated by the deceased spouse.
Married couples who anticipate having assets over the federal applicable exclusion level—the amount that can be shielded from federal gift and estate tax by the unified credit—at the death of the first spouse would typically use a bypass trust in addition to a marital trust. By creating both a marital and bypass trust, a married couple maximizes the amount that can pass to heirs and other beneficiaries free from federal inheritance tax by increasing the possibility that the applicable exclusion amounts of both spouses can be completely utilized.
Caution: For certain married couples, perhaps this is not the best course of action. The state death credit was replaced with a deduction beginning in 2005 by a tax law established in 2001. Consequently, a large number of states that levied a death tax equivalent to the credit separated their tax systems and implemented a separate death tax. A smaller exemption than the federal exemption is permitted in many of these states. Certain couples might be more susceptible to increased state death taxes as a result. For further information, speak with your financial advisor.
Tip: In 2011 and later years, the unused basic exclusion of a deceased spouse is portable and may allow you and your spouse to take full advantage of the estate tax applicable exclusion amount without using a bypass trust.
Ownership of Marital Assets Should Be Divided Between Husband and Wife
Before creating a marriage and bypass trust, a married couple should usually divide their assets so that each spouse has an equal amount of assets in their own names. The married couple may not be able to apply the appropriate exclusion amounts of both spouses if one spouse owns all of the assets or if they own all of the assets jointly. The couple will establish both bypass and marital trusts after the assets are divided. The bypass trust may receive enough assets from the first spouse's estate to allow the beneficiary to utilize their entire applicable exclusion amount.
Certain rights and restricted control over the assets in the bypass trust may be granted to the surviving spouse. He or she could be granted the authority to access the trust principal for their own health, education, support, and maintenance, or they might receive income from the trust. Additionally, the surviving spouse may be granted a limited power of appointment over the bypass trust, which would allow him or her to allocate trust assets to a specific class of beneficiaries that would not include themselves, their estate, their creditors, or their own creditors.
Assets Not Transferred to Bypass Trust Will Fund Marital Trust
The assets in the marital trust will be a part of the second spouse's gross estate if they are not transferred to the bypass trust. The assets in the marital trust may be utilized to support the trust. Nonetheless, upon the death of the first spouse, the assets moved to the marital trust won't be subject to taxes due to the unlimited marital deduction. These assets will not be subject to estate taxes until the survivor passes away. Additionally, the surviving spouse may use the applicable exclusion amount to shield all or a portion of the marital trust's assets from estate tax.
Many Marital Trusts Will Be Set Up As Qualified Terminable Interest Property (Qtip) Trusts
The marital trust will often be constituted as a QTIP trust. When a QTIP is used, the surviving spouse is entitled to all trust income for the duration of their lives. Nonetheless, the first spouse to pass away may subsequently specify in the trust agreement to whom the assets will pass upon the death of the surviving spouse.
This kind of trust is frequently utilized when one or both couples have children from a prior marriage to whom they would wish to transmit some or all of the assets, or when they are worried that the surviving spouse will remarry. Therefore, a married couple can use each of their applicable exclusion levels by utilizing both bypass and marital trusts, avoiding estate taxes on up to $23,160,000 (in 2020).
Caution: In some situations, however, (similar to the power of appointment trust), a marital trust will grant the surviving spouse the flexibility to remove the assets from the trust or leave them there at any time by withdrawing the trust's principle. The surviving spouse can also specify who will receive the trust assets following their death by using a power of appointment trust. In these situations, the husband and wife typically use the trust to minimize estate taxes while offering creditor protection or expert asset management.
When Can It Be Used?
Married Couple Should Expect to Have Assets In Excess of Applicable Exclusion Amount At Death of First Spouse Before Setting Up Marital Trust
Generally, marital and bypass trusts should only be set up at the expense and time of married spouses who anticipate having assets over the statutory exclusion level. When a married couple's assets fall below the applicable exclusion amount, they typically hold all of their assets jointly or have joint wills wherein all of their assets are left to each other outright. In either case, upon the death of the first spouse, all assets will belong to the surviving spouse. Upon death, estate taxes will not be payable from the surviving spouse's estate if the total value of the assets in the estate is less than the applicable exclusion level.
Example(s): For instance, you and your spouse have assets in excess of your combined applicable exclusion amounts. Both you and your spouse would like to minimize estate taxes that will be due at your respective deaths. You would also like your three children to inherit all of your assets. Your estate planner suggests setting up bypass and marital trusts.
Example(s): Enough assets will be transferred to the bypass trust upon the death of the first spouse in order to fully utilize the applicable exclusion amount. The bypass trust will not be included in the surviving spouse's estate as long as it is correctly drafted. The marriage trust will subsequently receive the remaining assets; this trust is typically established as a qualified terminable interest property (QTIP) trust. These assets in the QTIP trust that pass to the surviving spouse upon the death of the first spouse are not subject to taxes due to the unlimited marital deduction. However, following the surviving spouse's death, the QTIP trust's assets will be a part of their gross estate. For the purpose of avoiding inheritance tax, the surviving spouse may deduct any or all of these assets from their gross estate. When a spouse passes away, the remaining spouse might designate in the trust instrument that the couple's three children would inherit the assets in the QTIP trust. You may be able to take advantage of your spouse's and your own appropriate exclusion amounts by using the two trusts.
Tip: In 2011 and later years, the unused basic exclusion of a deceased spouse is portable and may allow you and your spouse to take full advantage of the estate tax applicable exclusion amount without using a bypass trust.
Ownership of Assets of Husband and Wife Should Be Equalized Before Setting Up Marital and Bypass Trusts
If a married couple expects that their combined assets will be above the applicable exclusion amount when the first spouse dies, they should plan to divide ownership of their assets so that each spouse owns approximately one-half of the assets in his or her own name. You do not want to own the assets jointly with your spouse. If you do, then upon the death of the first spouse, the surviving spouse will own all of the assets.
Due to the lack of assets in the first spouse's estate to which the exclusion can be applied, the surviving spouse's estate may become overqualified (exceeding the applicable exclusion amount) and the applicable exclusion amount may be wasted. The estate of the surviving spouse may also be overqualified and the applicable exclusion amount of the first spouse to pass away will be squandered if one spouse owns all of the assets alone and the other spouse passes away first.
Example(s): For example, you anticipate that in the event of one spouse's death in 2020, you and your spouse would have assets of $23,160,000. Right now, all of the assets are jointly owned by you. To reduce estate taxes, your estate planner advises dividing up asset ownership and establishing a bypass and marital trust. At the death of the first spouse, a sum equal to the applicable exclusion amount may be transferred to the bypass trust if the assets are equally divided ($11,580,000 owned by each spouse). The marriage trust can then get the remaining assets. The marriage trust's assets will be part of your surviving spouse's gross estate. On the other hand, estate taxes levied on the amount in the marital trust may be partially or totally offset by the surviving spouse using their applicable exclusion amount. You and your spouse may be able to take advantage of the applicable exclusion amounts by dividing your assets and establishing the two trusts.
Marital Trust Is Not Necessary to Minimize Federal Estate Taxes
It is not necessary to use a marital trust to minimize federal estate taxes. Instead of using a marital trust, one spouse could simply leave the assets directly to the surviving spouse. Those assets would pass to the surviving spouse's estate tax free due to application of the unlimited marital deduction and will be included in the gross estate of the surviving spouse. A marital trust can be useful where one or both of the spouses is concerned that the surviving spouse will remarry.
The first spouse to die may not want his or her assets to go to the new spouse, especially if there are children from the first marriage. The first spouse to die may also be concerned that the surviving spouse will squander the assets and nothing will be left for the children. If you set up a QTIP trust, the surviving spouse can receive all income for life from the trust and you can specify that your children will receive the assets remaining in the trust upon your surviving spouse's death.
Example(s): For instance, you and your spouse have been married for 10 years and have three children. You have approximately $23,160,000 in assets, the ownership of which is equally divided between you and your spouse. Both you and your spouse would like your assets to eventually go to your children, so you should set up both a bypass trust and a marital trust.
Example(s): Enough assets could be moved to the bypass trust at the death of the first spouse in order to fully utilize the applicable exclusion amount of the departed spouse. After that, the residual assets could be moved to the marital trust, which is often established as a QTIP. For the duration of their lives, the surviving spouse would get all trust income. All assets in the marital trust would go to the three children upon the death of the surviving spouse. It may not be required to create a marital trust if you and your spouse were not worried about the assets eventually passing to your children. Alternatively, the surviving spouse could receive all assets left over after paying the bypass trust.
Marital Trust Can Be One of Three Different Trusts
The unlimited marital deduction is available for three different kinds of marital trusts. The QTIP trust is a popular kind of marital trust. In a QTIP, the survivor spouse is entitled to all trust income at least once a year and can compel the trustee to convert trust assets into sources of income. That being said, this kind of trust is very common because the survivor need not have the authority to decide how the trust's assets are ultimately distributed.
The power of appointment trust is a second kind of trust that is eligible for the unlimited marriage deduction. This kind of trust gives the surviving spouse the authority to designate, during their lifetime or upon their death, any person or entity, including themselves, their creditors, their estate, or the creditors of their estate, as the beneficiary of the trust's assets. Similar to the QTIP trust, the surviving spouse is entitled to receive all trust income each year and can compel the trustee to convert trust assets into income-producing ones.
The estate trust is a third kind of trust that is eligible for the marital deduction. The surviving spouse does not need to have the authority to compel the trustee to turn the trust's assets into an income-producing entity since the trustee is not obligated to provide income to the surviving spouse under an estate trust. Upon the death of the surviving spouse, the remaining trust assets and any accrued income are, nevertheless, to be given to their estate. The estate trust is a good option if you want to include non-income-producing assets in a marital trust or if you want the trustee to invest the assets primarily for the benefit of the remaining spouses, as there is no requirement that the surviving spouse be granted the ability to compel the trustee to make the trust assets income-producing.
Executor Must Make Qtip Election on Federal Estate Tax Return
The executor of your will must make an affirmative QTIP choice on your federal estate tax return in order to qualify the trust for the marital deduction if you wish to transfer assets to a QTIP trust at the time of your death. The QTIP election cannot be undone once it is made. Your federal estate tax return will be deemed to have made an affirmative QTIP election if the executor lists the QTIP property on schedule M.
Strengths
Use of Qualified Terminable Interest Property (Qtip) Trust Important If You Want Assets to Pass to Specific Individuals
By using a QTIP, the first spouse to pass away can choose in the trust agreement to whom the QTIP's assets will flow upon the passing of the surviving spouse. The surviving spouse may leave those assets to a new spouse or new children if the first spouse to pass away simply left all of his or her possessions to the other spouse. Every asset may be spent or wasted by the surviving spouse as well. The surviving spouse can benefit from the assets in the form of a lifetime right to income by leaving them in a QTIP trust, which also guarantees that the assets pass to the people named by the deceased spouse.
Use of Marital and Bypass Trusts Allows a Married Couple to Benefit From Family Wealth While Minimizing Estate Taxes
Another reason for using a marital and a bypass trust is to allow both spouses to benefit from the family wealth while minimizing federal estate taxes on their combined estates. By allocating some of the assets to the marital trust and some of the assets to the bypass trust, the applicable exclusion amounts of both spouses can be used to leave more to their heirs free from federal estate taxes.
Example(s): For example, you and your spouse anticipate that upon the death of the first spouse, your gross estate will be $23,160,000. In the event that the surviving spouse passes away, you would prefer your three little children to receive everything. You and your spouse have evenly divided ownership of the assets, as advised by your estate planning counsel. A bypass trust and a QTIP have both been drafted by your attorney. Enough assets are transferred to the bypass trust at the death of the first spouse in order to utilize the applicable exclusion amount for that spouse in full. All other assets have been moved to the QTIP. Your children are listed as beneficiaries of this trust, and the surviving spouse gets full life income from the QTIP. All of the QTIP's assets go to your children upon the death of the surviving spouse. The QTIP trust's value will be part of the surviving spouse's estate. On the other hand, the federal estate taxes owed on those assets may be entirely or substantially offset by the individual using their applicable exclusion amount. By utilizing the two trusts, you have reduced the amount of federal estate taxes that must be paid upon the passing of both you and your spouse, guaranteed that your children will receive the majority of your assets, and let the surviving spouse to benefit from the family wealth (through lifelong income).
Tip: In 2011 and later years, the unused basic exclusion of a deceased spouse is portable and may allow you and your spouse to take full advantage of the estate tax applicable exclusion amount without using a bypass trust.
Marital Trust May Be Used to Maximize Use of Generation-Skipping Transfer (GST) Tax Exemption of Both Spouses
In order to optimize the couple's utilization of the generation-skipping transfer tax exemption of both spouses, bypass and QTIP trusts have been developed in recent years. A transfer from one person to another who is two or more generations below the transferor is subject to the GST tax. In addition to any other gift or estate taxes that might be owed on the transfer, the GST tax rate is 40% (in 2020). The GST tax is exempt for life for each individual ($11,580,000 in 2020, $11,400,000 in 2019).
In order to completely exempt the bypass trust from GST tax, the exemption is frequently divided between the bypass trust and the QTIP trust. This allocation increases the likelihood that in 2020, the husband and wife will be able to leave up to $23,160,000 to skip individuals without having to pay GST tax, provided they make full use of their GST tax exemptions.
Caution: Unlike the gift and estate tax basic exclusion amount in 2011 and later years, the GST tax exemption is not portable for spouses.
Tradeoffs
Attorney Should Be Hired to Draft Marital Trust Documents
For information on the tax and estate planning consequences of creating a bypass and marriage trust, see a qualified and experienced estate planning lawyer. To design the documentation required to establish and fund the trusts, you should also engage an estate planning attorney.
Trustee Will Be Needed
You will need to appoint a trustee for the marital trust. A trustee will be needed to manage assets of a trust from the time it is funded (either during your lifetime or upon your death) until it terminates. Many people appoint a professional trustee (a bank trust department or professional fiduciary) who will have to be compensated for the services provided. Typically, a professional trustee receives an annual management fee of 1 percent or more of the assets under management.
Surviving Spouse May Not Have Full Control Over Assets In Marital Trust
The possessions that are moved to a marital trust might not be entirely under the jurisdiction of the surviving spouse. For instance, if the marital trust is set up as a qualified terminable interest property trust (QTIP), the surviving spouse will not be able to control how the trust's assets are distributed after death, even though they will still be entitled to all income from the trust for the remainder of their lives. Not being able to fully control the assets that the couple has spent their lives building is a very unpleasant outcome for many surviving spouses.
Tip: There are exceptions. For example, if the trust is set up as a power of appointment trust, the surviving spouse retains control over the assets in the marital trust and may dispose of them as he or she wishes, both during his or her life and at death.
Grantor Cannot Require Qualified Terminable Interest Property Trust (Qtip) (or Power of Appointment Trust) to Hold Non-Income-Producing Assets
Another tradeoff to setting up a marital trust is that with certain types of marital trusts, the creator of the trust cannot dictate what types of assets can be held in the trust. With a QTIP, for example, the surviving spouse has to be given the right to require the trustee of the trust to invest in income-producing property. The surviving spouse is entitled to all income from the trust for his or her lifetime.
Example(s): In order to reduce estate taxes that will be owed upon your deaths, your estate planning attorney advises that you and your spouse establish a bypass trust in addition to a QTIP. The remaining beneficiaries of the QTIP trust are your children. If your surviving spouse passes away, you would prefer your trustee to invest the QTIP to maximize the amount that will go to your children. You would like the QTIP contract to include a clause allowing the trustee to invest solely in growth stocks—stocks with no dividends—in order to achieve this goal. Regretfully, you are unable to control the kinds of investments that the trust will hold when using a QTIP. The right to demand that the trustee make investments in assets that generate income must belong to the surviving spouse.
Grantor Loses Power Over Disposition of Assets With Power of Appointment
You forfeit the authority to determine the final disposition of the assets upon the death of the surviving spouse if you choose to establish the marital trust as a power of appointment trust. Alternatives to the power of appointment trust should be taken into consideration if you have beneficiaries, such as children, that you would prefer to acquire your assets from in the event of the surviving spouse's death. A power of appointment trust must give the surviving spouse a general power of appointment over the trust assets in order to be eligible for the unlimited marital deduction. With this authority, the surviving spouse may distribute the trust assets to creditors or other parties after death and use them for their own profit while still living.
Tip: Because the power of appointment trust allows the surviving spouse to have authority over the trust's assets, some couples might choose it over a QTIP. The surviving spouse has the freedom to use the trust's assets as they see fit throughout their lifetime and to dispose of them as they see fit after death when there is a power of appointment trust in place. The benefits of a QTIP, which allows the surviving spouse little to no influence over how the trust assets are distributed, are often outweighed by this flexibility for couples.
How to Do It
Attorney Should Be Hired to Draft Marital Trust and to Transfer Assets to Trust
The marital trust should be drafted by a qualified and experienced estate planning attorney. You should speak with your estate planning attorney about any quite complex tax and estate planning decisions that may need to be made prior to establishing a marital trust. To transfer title of the assets to the marriage trust, you could also want legal assistance if you finance the trust during your lifetime.
Individual or Institution Should Be Trustee
A corporate trustee (such a bank trust department or a private trust business) or an individual who is a professional fiduciary should be considered if your estate is substantial. Your estate planning lawyer ought to be able to suggest a number of qualified trustees to you. There are two main duties for the trust trustee.
In order to provide income for the income recipient, the trustee must first oversee and manage the trust's assets. Secondly, the trustee is required to make an effort to protect the principal for the beneficiaries who will ultimately inherit the trust assets, or the remainder beneficiaries. Should you possess significant assets, it is advisable to engage with a person or organization that specializes in overseeing these kinds of trusts.
Beneficiary and Remainder Beneficiary Must Be Chosen
For the marriage trust, you have to select the income beneficiary and remaining beneficiaries (those who will inherit the assets in the event that the income beneficiary passes away). The surviving spouse is entitled to all trust income for the rest of their life if the marital trust is set up as a power of appointment trust or as a qualified terminable interest property (QTIP) trust. The children from either your present marriage or a previous marriage will usually be the beneficiaries of the remaining portion.
Example(s): In order to take advantage of the appropriate exclusion amounts—the total that can be shielded from federal gift and estate tax by the unified credit—of both you and your spouse, your estate planning counsel has advised that you establish both a marital trust and a bypass trust. He or she suggests creating a QTIP for the marriage trust. Enough assets will be moved to the bypass trust at your passing so that your applicable death exclusion amount is completely utilized. The QTIP will then be funded with the balance of your assets. Your children may be designated as the residual beneficiaries to inherit the trust's assets when your spouse passes away. However, your spouse must continue to receive all trust income for the duration of their lives. By doing this, you have stopped your spouse from remarrying and taking ownership of your assets.
Executor Must Make Affirmative Qtip Election on Estate Tax Return
In order to qualify the assets in the trust for the unlimited marital deduction, your executor must make an affirmative, irrevocable QTIP choice on the federal estate tax return if you intend to transfer assets to a QTIP trust after your death. Your executor may choose to elect for a complete or partial QTIP in relation to those assets. Usually, your estate planning lawyer will include a clause in your will instructing your executor on the percentage of your estate that should go to the QTIP trust.
To ensure that the executor of your estate makes a QTIP election for the component of your assets that will result in zero federal estate taxes, your attorney may include language in your will specifying this. Stated differently, enough assets will be moved to your bypass trust to fully utilize the applicable exclusion amount that will be available upon your death. Your estate tax obligation will be eliminated when the remaining assets are moved to the QTIP.
Giving the executor the authority to add sufficient assets to the first spouse's estate so that certain estate taxes are paid out of that estate is one substitute that some estate planning professionals suggest. Rather than overloading the surviving spouse's estate, where the marginal estate tax rate may be significantly higher, it would make sense for the estate of the first person to pass away to actually pay some estate taxes at a relatively low marginal estate tax rate.
Tip: In 2013 and later years, a federal gift and estate tax rate of 40 percent generally applies to taxable amounts in excess of the applicable exclusion amount. In those years, there may be no advantage to equalizing estates in order to avoid graduated tax rates.
Tax Considerations
Income Tax
Income from Assets Transferred to Revocable Living Trust Will Be Taxed to Grantor of Trust
You will pay income tax on any income derived from assets you transfer to a married revocable living trust (one that is established while you are still alive). For income tax purposes, you are still regarded as the asset's owner because the transactions are not irreversible transfers to the trust. Depending on whether the income is distributed to the beneficiaries or kept by the trust, the trust or the beneficiaries will pay taxes on it after your death.
Example(s): You set up a revocable living trust and transfer $500,000 to the trust. The trust generates $30,000 per year in income. You must include this amount in your adjusted gross income each year. After you die, the beneficiaries will be taxed on the trust income if it is distributed to them. If the trust retains the income, then the trust will be taxed on the income.
Gift and Estate Tax
No Gift Taxes Are Due for Transfers to Revocable Living Trust
Because you retain the right to terminate a revocable living trust, no gift taxes are due at the time of the transfer to the trust. The assets in the revocable living trust will be included in your gross estate for estate tax purposes when you die.
Gift Taxes May Be Due on Transfers to Irrevocable Trust
Gift taxes may be due if you make transfers to an irrevocable trust during your lifetime. Any gift tax due may be offset by your applicable exclusion amount ($11,580,000 in 2020, $11,400,000 in 2019), to the extent it is available.
Caution: Any portion of your applicable exclusion amount you use during your lifetime reduces the amount that will be available at your death.
After Death, Assets Going to Marital Trust Will Qualify for Unlimited Marital Deduction
If an appropriate decision is made to treat assets as QTIP property, assets transferred by your executor to a qualified terminable interest property (QTIP) marriage trust after your death will be eligible for the unlimited marital deduction. Any assets moved to an estate trust or power of appointment trust for the survivor spouse's benefit are immediately eligible for the unlimited marital deduction.
With one of these marital trusts, you can give your spouse an infinite amount of assets without having to worry about paying estate taxes when you pass away. In the event of your surviving spouse's passing, the assets still in the marital trust will be a part of their taxable estate. The assets can then be completely or partially exempt from estate taxes by your spouse using their respective exclusion amount for estate taxes.
Questions & Answers
What Size Estate Should a Married Couple Have Before They Consider Using a Marital Trust?
Usually, a married couple should have assets in excess of the applicable exclusion amount before considering the use of a marital trust. One of the main purposes of a marital trust (or a marital trust used in conjunction with a bypass trust) is to permit utilization of each spouse's applicable exclusion amount in order to maximize the amount that can be left free from federal estate taxes at the death of both spouses. If you expect that your combined estate will be below the applicable exclusion amount, then there may be no need to use a marital trust.
Should Spouses Who Expect to Have an Estate In Excess of The Applicable Exclusion Amount Have Joint Ownership of Their Assets?
No. In general, a married couple with assets in excess of the applicable exclusion amount should not own their assets jointly. If they do, the surviving spouse will automatically be the owner of all the assets upon the death of the other spouse. The surviving spouse's estate may be overloaded and the applicable exclusion amount of the first spouse to die will have been wasted as there would be no assets in his or her estate to which the exclusion could be applied. Rather, the married couple should split up ownership of their assets and then use both a marital and a bypass trust.
Are There Different Types of Trusts That Can Be Set Up As A Marital Trust?
Indeed. As a marriage trust, one might establish one of three types of trusts. A qualified terminable interest property (QTIP) trust is a popular type of trust in which the survivor is entitled to all trust income for the duration of their life. In the event that the surviving spouse passes away, the creator of the trust may specify in the trust instrument who will inherit the trust's assets. In addition to being entitled to all income during their lifetime, the surviving spouse must also have the ability to compel the trustee to turn the QTIP trust's assets into a source of income. For estate tax purposes, the surviving spouse's gross estate will contain all of the assets in the QTIP trust.
The power of appointment trust is a second kind of marital trust. In this case, the surviving spouse is entitled to receive all trust income for the rest of their lives and is also granted general power of appointment over trust property. Similar to a QTIP, the surviving spouse needs to be able to compel the trustee to turn the assets into a source of income. Every asset held in trust will be part of the surviving spouse's gross estate.
The estate trust is the last kind of marital trust in which the surviving spouse is not required to get all trust income while they are living. But upon the death of the surviving spouse, the trust's assets—including any accrued income—must be paid to that spouse's estate. An estate trust can contain non-income producing assets. Thus, growth stocks or undeveloped property could be considered trust assets.
Does It Ever Make Sense for a Married Couple to Pay Estate Taxes At the Death of the First Spouse?
Indeed. In certain cases, it may be more advantageous for a married couple to pay some estate taxes upon the passing of the first spouse. In 2020, the highest marginal federal estate tax rate is forty percent. It might be wise to include enough assets in the first spouse's gross estate if their marginal rate of estate taxation is low, in order to have some federal estate taxes assessed at the lower marginal rate.
The surviving spouse's gross estate will not contain these assets, which could otherwise be liable to taxation at the higher rate. Rather of overwhelming the surviving spouse's inheritance upon the death of the first spouse, the couple could be better suited paying taxes at the lower tax rate if the surviving spouse is projected to have significant assets that push their estate into a higher marginal estate tax band.
Tip: In 2013 and later years, a federal gift and estate tax rate of 40 percent generally applies to taxable amounts in excess of the applicable exclusion amount. In those years, there may be no advantage to equalizing estates in order to avoid graduated tax rates.
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that focuses on transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.
The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.