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Marital Deduction Trust

This trust is a living revocable trust and is often called an "A-B" trust, loving
trust, grantor trust, or marital trust. This is one of the most popular trusts
because of what it accomplishes.

Married couples can eliminate or significantly reduce federal estate taxes on the
death of both. At current tax levels (2005), an individual can shield $1,500,000
from federal taxation, and a married couple can shield twice that or $3,000,000,
if the estate plan is properly drafted and funded.

Assets which pass through the trust are not subject to probate, which is good
for several reasons. That helps maintain confidentiality. A probate involves
filing public documents, including an inventory of the estate. A trust does not
require publication of this confidential information. Avoiding probate means
saving time and attorney's fees, always a worthy goal. Spend a small amount
of money now to properly set up your estate, and save much more for your
heirs later (not to mention the possibility of saving on a large federal tax bill). It
should also be recognized that if the deceased owns property in another state,
an ancillary probate will have to be done, unless probate is avoided.

This kind of trust, however, cannot be used to shield assets from Medicaid. A
special type of trust is required to accomplish that.

The Marital Deduction Trust must provide that all of the income be payable to
the surviving spouse for his or her life, or accumulated for his or her benefit.
The "A" portion of the trust (marital portion) must also be available to the
surviving spouse (a draw on capital). The "B" side of the trust (or residuary
trust or family trust) usually provides for income to the surviving spouse and
the ability to invade capital based on needs for "health, support, and
maintenance." The tax savings concept here is this: since the surviving spouse
does not have what is defined as a "terminable interest" in the residuary portion
of the trust, it will not be taxable in the estate of the deceased surviving spouse.

It should be recognized that although your estate may have a total value of $3
million, you should account for substantial appreciation through 2011. That
alone could push a modest estate into the taxable category. Good estate
planning not only solves the potential problems of the day, but peers into the
future to avoid some of the common errors in planning.

Estate Planning & Asset Protection

Learn on this site how to do good estate planning and good asset protection. Learn also
how to coordinate your business planning with your estate planning.

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