A marital trust enables you, the grantor of the trust, to set aside assets and property for your spouse if you die before he or she does. These assets can include stocks, bonds, mutual fund accounts, bank accounts, real property, and more. A marital trust also allows you to pass these assets over to a spouse tax free. But why does this matter? After all, marital property that goes from one spouse to the surviving spouse is not taxed anyways. It matters because a marital trust allows you to take advantage of the combined couple’s estate tax exemption even if one spouse dies before the other.
How A Marital Trust Shields Your Assets from Estate Tax
An estate gets taxed if it is valued at more than $11.4 million. For a married couple, the tax exemption is doubled. This means that up to $22.8 million can be left to their heirs before the estate is taxed by the IRS. A marital trust allows a couple to shield the combined marital assets so that if Spouse A dies at a different time than Spouse B, they still can take advantage of that $22.8 million estate tax exemption.
For example, a grantor of a marital trust dies and passes $13 million to his wife in a marital trust. His wife dies six years later and passes her remaining assets, equaling $6 million, in addition to the $13 million in the marital trust, to their heirs for a combined total of $19 million. Even though she is an individual, that $19 million estate is not taxed. It surpasses the $11.4 million estate tax maximum exemption threshold set by the IRS, but the marital trust bumps it up to the married couple’s exemption of $22.8 million.
QTIP Trust
A Qualified Terminable Interest Property (QTIP) trust is a type of marital trust that allows the grantor to give a spouse access to his or her assets after the grantor’s death. For example, the husband may have children from a previous marriage, and his wife may have her own children from a previous marriage. The husband wants his wife to be financially taken care of when he is gone, but also does not want his assets to go to her children—he wants his remaining assets to go to his children instead. A QTIP trust makes this possible.
Maryland Estate Tax
Maryland imposes an estate tax on estates worth more than $5 million*. Heirs may be subject to inheritance tax as well, according to the Comptroller of Maryland, particularly if the beneficiaries are not children, a spouse, or siblings.
Maryland Deduction Rule
The Maryland Deduction Rule allows a spouse to give unlimited gifts to his or her spouse during their lifetime and afterwards. The Deduction Rule can be used to minimize or erase any state or federal estate taxes that would otherwise have to be paid to the IRS.
Reach Out to an Experienced Maryland Estate Tax Attorney
Estate planning is complicated, especially for a large estate, particularly when attempting to shield assets from taxation. An experienced Maryland Trust Attorney can help you maximize your tax savings and create various trusts that benefit and protect your loved ones. To schedule a free initial consultation, contact our attorneys at Frame & Frame at 410-255-0373 or through our website by clicking here Contact Frame & Frame.
Additional Resources:
*Estate taxes change frequently. Learn about current guidelines.