Marital Trust in Miami, Florida

What Is a Marital Trust?

A marital trust is a trust established for the benefit of a surviving spouse that is designed to qualify for the unlimited federal estate tax marital deduction under 26 U.S.C. § 2056. By qualifying for the marital deduction, assets placed in the marital trust are not subject to federal estate tax upon the death of the first spouse. The most common form of marital trust is the qualified terminable interest property (QTIP) trust, which allows the deceased spouse to provide for the surviving spouse while retaining control over where the trust assets ultimately pass after the surviving spouse's death.

At the Law Offices of Albert Goodwin, PA, we help married couples throughout South Florida establish marital trusts as part of comprehensive estate plans. Whether you are in a first marriage, a second marriage, or a blended family situation, a marital trust can be structured to balance the financial security of the surviving spouse with the estate planning goals of the deceased spouse.

The Marital Deduction

The unlimited marital deduction, codified in 26 U.S.C. § 2056, allows a married individual to transfer an unlimited amount of property to their spouse at death without incurring any federal estate tax. The deduction is available for outright transfers to the surviving spouse and for transfers in trust, provided the trust meets the statutory requirements for marital deduction qualification. The policy behind the marital deduction is that the transferred assets will eventually be subject to estate tax in the surviving spouse's estate at the second death, rather than at the first death.

However, the marital deduction is a deferral, not an elimination, of estate tax. Assets that pass to the surviving spouse, whether outright or in a marital trust, are included in the surviving spouse's taxable estate unless they are consumed, gifted, or otherwise disposed of during the surviving spouse's lifetime. For this reason, marital trust planning is typically combined with credit shelter trust planning to maximize the use of both spouses' estate tax exemptions.

Types of Marital Trusts

QTIP Trust (Qualified Terminable Interest Property)

The QTIP trust is the most widely used form of marital trust. Under 26 U.S.C. § 2056(b)(7), a trust qualifies for the marital deduction as QTIP if: (1) the surviving spouse is entitled to all income from the trust, payable at least annually, for the remainder of the surviving spouse's life; and (2) no person, including the surviving spouse, has the power to appoint any part of the trust property to any person other than the surviving spouse during the surviving spouse's lifetime. The executor of the deceased spouse's estate must make a QTIP election on the federal estate tax return (IRS Form 706) for the trust to qualify.

The critical feature of a QTIP trust is that it qualifies for the marital deduction while allowing the deceased spouse to control the ultimate disposition of the trust assets. The deceased spouse designates the remainder beneficiaries, the persons who will receive the trust assets after the surviving spouse's death. This is typically the couple's children, but it can be any person or entity the deceased spouse chooses. The surviving spouse has no power to redirect the remainder to anyone else.

General Power of Appointment Trust

A general power of appointment marital trust, authorized under 26 U.S.C. § 2056(b)(5), qualifies for the marital deduction by giving the surviving spouse a general power of appointment over the trust assets. The surviving spouse must be entitled to all income from the trust for life, and must have the power to appoint the trust principal to themselves, their estate, their creditors, or the creditors of their estate. This gives the surviving spouse complete control over the disposition of the trust assets, which is a significant distinction from the QTIP trust.

General power of appointment trusts are less commonly used than QTIP trusts because they do not allow the deceased spouse to control where the trust assets go after the surviving spouse's death. However, they may be appropriate in situations where the deceased spouse wants to give the surviving spouse maximum flexibility and control.

Estate Trust

An estate trust qualifies for the marital deduction by providing that all remaining trust assets will be payable to the surviving spouse's estate at the surviving spouse's death. Unlike the QTIP trust, an estate trust does not require that all income be distributed annually to the surviving spouse. Income can be accumulated within the trust, making the estate trust useful for holding non-income-producing assets such as undeveloped real estate or growth stocks. However, because the trust assets pass through the surviving spouse's estate, the surviving spouse's will controls the ultimate disposition of the assets, which may not be desirable in blended family situations.

QTIP Trusts and Second Marriage Planning

QTIP trusts are the primary planning tool for married couples in second or subsequent marriages, particularly when one or both spouses have children from a prior relationship. In a blended family, the deceased spouse often faces competing objectives: providing financial security for the surviving spouse while ensuring that the deceased spouse's children from a prior marriage ultimately receive their inheritance.

A QTIP trust resolves this tension by guaranteeing the surviving spouse income for life while preserving the trust principal for the deceased spouse's chosen remainder beneficiaries, typically the children from the prior marriage. The surviving spouse receives all income from the trust and may also receive distributions of principal for health, education, maintenance, and support, depending on how the trust is drafted. Upon the surviving spouse's death, the remaining trust assets pass to the remainder beneficiaries designated by the deceased spouse.

Without a QTIP trust, a spouse who leaves assets outright to the surviving spouse has no assurance that those assets will eventually reach the deceased spouse's children. The surviving spouse is free to spend the assets, give them away, or leave them to anyone in their own estate plan. In Miami-Dade County and throughout South Florida, where blended families are common, the QTIP trust provides a critical mechanism for protecting the interests of children from prior marriages while fulfilling the deceased spouse's obligation to the surviving spouse.

Florida Elective Share Considerations

Florida's elective share statute, F.S. § 732.201 through § 732.2155, gives a surviving spouse the right to claim 30% of the decedent's "elective estate," regardless of what the deceased spouse's will or trust provides. The elective share is designed to prevent the complete disinheritance of a surviving spouse, and it is a critical consideration in marital trust planning.

The elective estate for purposes of this calculation is broader than the probate estate. Under F.S. § 732.2035, the elective estate includes not only assets that pass through the will but also assets held in revocable trusts, assets owned as joint tenants with right of survivorship, pay-on-death accounts, life insurance with designated beneficiaries, pension and retirement benefits, and other transfers that the decedent made during life that are treated as part of the elective estate.

Assets that pass to the surviving spouse, whether outright or in trust, are counted toward satisfying the elective share under F.S. § 732.2075. A properly funded QTIP trust can satisfy all or a substantial portion of the surviving spouse's elective share entitlement. However, the trust must be carefully drafted and funded to ensure that the elective share is satisfied. If the surviving spouse's elective share is not satisfied by the assets passing to or for the benefit of the surviving spouse, the surviving spouse may petition the court for an additional share from other estate assets.

Prenuptial and postnuptial agreements can waive the elective share under F.S. § 732.702, but the waiver must be executed voluntarily and with full disclosure of the other spouse's assets. Many couples entering second marriages in Florida execute marital agreements that waive the elective share in conjunction with a QTIP trust plan, providing the surviving spouse with a defined benefit while preserving the remainder for the deceased spouse's children. For more information on the elective share, see our elective share page.

Marital Trust Administration Under the Florida Trust Code

After the first spouse's death, a marital trust becomes irrevocable and must be administered in accordance with the Florida Trust Code, F.S. Chapter 736. The trustee of a marital trust has a fiduciary duty under F.S. § 736.0802 to administer the trust solely in the interests of the beneficiaries and in accordance with the terms of the trust instrument. For a QTIP trust, this duty extends to both the surviving spouse (the income beneficiary) and the remainder beneficiaries.

Duty of Impartiality

One of the most challenging aspects of marital trust administration is the trustee's duty of impartiality under F.S. § 736.0803. When a trust has both a current beneficiary (the surviving spouse) and remainder beneficiaries (typically children), the trustee must balance the interests of both. Investment decisions must account for both the surviving spouse's need for income and the remainder beneficiaries' interest in preserving and growing the principal. This balancing act is a frequent source of trust litigation in Florida, particularly in blended family situations where the surviving spouse and the remainder beneficiaries have competing interests.

Income and Principal Allocation

The Florida Uniform Principal and Income Act, F.S. Chapter 738, governs how trust receipts and expenses are allocated between income and principal. For a QTIP trust, where the surviving spouse is entitled to all income, the allocation of receipts between income and principal directly affects the surviving spouse's distributions. Capital gains, for example, are generally allocated to principal rather than income, which means the surviving spouse does not receive them as part of their income distribution. The trustee's power to adjust between income and principal under F.S. § 738.104 and the power to convert to a unitrust under F.S. § 738.1041 can be important tools for ensuring fair and appropriate distributions.

Tax Considerations

A QTIP trust is a separate taxable entity for federal income tax purposes. The trust files IRS Form 1041, and income distributed to the surviving spouse is deductible by the trust and reportable by the surviving spouse. Because the surviving spouse is entitled to all trust income, most or all of the trust's income will be distributed and taxed at the surviving spouse's individual rate rather than the trust's compressed tax brackets.

Upon the surviving spouse's death, the assets remaining in the QTIP trust are included in the surviving spouse's taxable estate under 26 U.S.C. § 2044. The trust assets receive a new stepped-up basis to their fair market value at the surviving spouse's date of death under 26 U.S.C. § 1014, which can eliminate capital gains on appreciated assets held in the trust. The estate of the surviving spouse is responsible for paying any estate tax attributable to the QTIP trust assets, although the trust instrument can allocate this tax burden differently.

Marital Trust and Credit Shelter Trust Coordination

In most estate plans for married couples, the marital trust and the credit shelter trust work together as complementary components of an AB trust plan. Upon the first spouse's death, assets equal to the estate tax exemption amount are allocated to the credit shelter trust (the B trust), and the remaining assets are allocated to the marital trust (the A trust). This structure maximizes the use of both spouses' estate tax exemptions while providing the surviving spouse with income and access to principal from both trusts.

The allocation between the marital trust and the credit shelter trust is typically governed by a formula clause in the trust instrument. The formula must be drafted carefully to ensure the correct funding of each trust, taking into account the applicable estate tax exemption, the available GST tax exemption, and any specific assets that should be allocated to one trust or the other. For families with generation-skipping trust planning objectives, the credit shelter trust may be designed as a dynasty trust, with the GST tax exemption allocated to the B trust while the marital trust benefits only the surviving spouse and their generation.

Contact a Miami Marital Trust Attorney

A marital trust is an essential component of estate planning for married couples, providing financial security for the surviving spouse while preserving wealth for future generations. Whether you need a QTIP trust to protect children from a prior marriage, an AB trust plan to maximize estate tax savings, or guidance on Florida's elective share rules and how they interact with your trust plan, the Law Offices of Albert Goodwin, PA can help you navigate these complex issues.

We represent individuals and families throughout Miami-Dade County, Broward County, and Palm Beach County in all aspects of marital trust planning, estate tax planning, and trust administration. Our office is located at 121 Alhambra Plz #1000, Coral Gables, FL 33134. To schedule a consultation, call us at 786-522-1411 or email [email protected].