What Is a Family Trust & a Marital Trust?
A family trust and a marital trust are very similar. Both allow one person, either a spouse or other family member, to share the benefits of property ownership with the other spouse or other family members.
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Trusts and Property
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A trust is a legal form of property ownership where the person who creates the trust, called the trustor, transfers property to a trust. The property in the trust is managed and invested by a trustee, and the trustee makes distributions from the trust to one or more beneficiaries.
Types
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In a marital trust, the trustors and the beneficiaries are the spouses. In a family trust, the beneficiaries often include both spouses plus children, siblings or other family members. As a legal matter, there is nothing special or unique about family trusts or marital trusts. However, as a practical matter, they are commonly used to transfer and share property among family members.
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Function
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One of the primary functions of creating a trust is to avoid probate. Probate is a legal proceeding that occurs when you die and all of your property is distributed according to your will, or if you have no will, according to state law. A probate judge oversees the probate of your property. Because it involves the court system, probate can be long, complex and expensive.
Property held in a family or marital trust does not have to go through probate, since the property is owned by your trust and not by you personally. This can save your family and spouse a lot of headache and money.
Benefits
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In addition to avoiding probate, a family or marital trust can provide other benefits. For large estates, a trust can be used to avoid estate or death taxes on your property when you die. Additionally, a trust can reduce income taxes during your life. Finally, a family or marital trust allows you to share the benefits of property with your loved ones. For example, if you own a piece of rental property that produces $15,000 in income each year, you can easily share that income with your family by setting up a family trust to hold the property. The trustee then manages the rental unit and distributes the income as you instruct in the trust document.
Warning
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Family and marital trusts can be simple, especially if you own very little property, but they can also be extremely complex. Many attorneys will not even work with large estates because the tax regulations of the IRS are so detailed and complex. Anybody with a large estate, meaning total property worth more than $1million, would be wise to pay an estate-planning attorney a few thousand dollars to draft the family or marital trust documents.
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