Marital Deduction Trust

A Marital Deduction Trust is an estate planning tool designed to allow individuals to transfer assets to their surviving spouse without incurring federal estate taxes. This type of trust takes advantage of the marital deduction, which permits an unlimited amount of property to be transferred between spouses during life or at death without tax consequences.

The Marital Deduction Trust typically functions in two parts: the Marital Trust and the Bypass Trust. Upon the death of the first spouse, assets can be placed into the Marital Trust, where the surviving spouse can access the income generated from the trust during their lifetime. This allows them to benefit from the trust assets while also deferring estate taxes until their death.

The key feature of a Marital Deduction Trust is that the assets in the trust may be included in the surviving spouse’s estate, allowing for their step-up in basis upon the death of the second spouse. This can provide significant tax benefits, especially for appreciated assets, as it can reduce capital gains taxes for heirs when they eventually sell those assets.

For example, if a married couple has significant assets and one spouse passes away, the surviving spouse can establish a Marital Deduction Trust to manage those assets. The trust can provide income to the surviving spouse while preserving the principal for the couple’s children or other beneficiaries after the surviving spouse’s death.

In Texas, including the Houston area, the laws governing trusts and estate taxes generally align with federal laws, meaning the Marital Deduction Trust can be utilized effectively for estate planning purposes. However, it is advisable to consult with a qualified estate planning attorney familiar with Texas laws to ensure proper implementation and compliance with state-specific regulations.