A marital trust is an estate planning arrangement one spouse sets up to provide for the other after death, hold assets in trust for that surviving spouse’s lifetime, defer federal estate tax on the transfer through the unlimited marital deduction, and then pass whatever is left to the final beneficiaries the first spouse chose. It is the standard tool for couples who want to support a surviving spouse without giving up control over where the wealth eventually lands.
How a Marital Trust Works
Three roles run the trust. The grantor is the spouse who creates and funds it. The trustee, an individual or an institution, manages the assets. The beneficiaries receive from it: the surviving spouse is always the primary beneficiary during their lifetime, and the final beneficiaries, often the couple’s children, take whatever remains after the surviving spouse dies.
The trust document is usually drafted while both spouses are alive as part of a broader estate plan, but the trust itself isn’t funded until the first spouse dies. Until that point, the couple can amend the terms freely. Once the first spouse passes and assets flow in, the trust becomes irrevocable. The trustee then administers those assets under the written terms for the rest of the surviving spouse’s life.
During that lifetime, the trustee distributes income to the surviving spouse, and depending on how the trust is written, may also distribute principal for needs like healthcare or living expenses. When the surviving spouse dies, the trustee distributes what is left to the final beneficiaries named in the original document. The grantor’s instructions are honored even decades after their death.
The Unlimited Marital Deduction
The tax rule that makes a marital trust work is the unlimited marital deduction. Federal law lets a married person transfer any amount of property to their spouse, either during life or at death, free of federal estate and gift tax.1Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse A separate provision applies the same unlimited deduction to lifetime gifts between spouses.2Office of the Law Revision Counsel. 26 USC 2523 – Gift to Spouse
When assets pass from a deceased spouse into a properly structured marital trust, their full value is subtracted from the taxable estate. No federal estate tax is due on those assets at the first death. This is deferral, though, not permanent escape. Whatever remains in the marital trust at the surviving spouse’s death is pulled back into their taxable estate, and estate tax applies then.3Office of the Law Revision Counsel. 26 USC 2044 – Certain Property for Which Marital Deduction Was Previously Allowed The deduction treats the couple as a single economic unit and concentrates the tax hit at the second death, when the full picture of remaining wealth is clear.
QTIP Trusts
The most common marital trust is the Qualified Terminable Interest Property trust, or QTIP. Its defining feature is that the grantor keeps control over where assets go after the surviving spouse dies, while still qualifying for the marital deduction.
To qualify, a QTIP must meet two requirements written into federal tax law. The surviving spouse must be entitled to all income from the trust, distributed at least annually. And no one, including the surviving spouse, may direct trust property to anyone other than the surviving spouse during their lifetime.4Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse – Section (b)(7) The trust may also let the trustee reach principal for the surviving spouse’s health, education, or living expenses, but that is optional.
The executor must affirmatively elect QTIP treatment on the estate tax return after the grantor dies. Once made, the election is irrevocable.5Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse – Section (b)(7)(v) Missing the election window means losing the marital deduction on those assets entirely.
QTIPs are especially useful in blended families. A spouse from a second marriage can receive income for life, while the grantor’s children from a first marriage are guaranteed to inherit whatever is left. Without the QTIP structure, nothing would stop the surviving spouse from redirecting everything to their own family.
General Power of Appointment Trusts
The other main form of marital trust gives the surviving spouse far more control. Under a general power of appointment trust, the surviving spouse receives all income for life, just as with a QTIP. The difference is that the surviving spouse also gets the power to direct where the trust assets go, including to themselves, their estate, their creditors, or anyone else they choose.6Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse – Section (b)(5)
That power must be exercisable by the surviving spouse alone and “in all events,” meaning no one else can override or limit it. The grantor gives up control over the final destination of the assets in exchange for maximum flexibility for the surviving spouse. This structure fits couples who agree on who should eventually inherit, or a grantor who trusts the surviving spouse’s judgment completely. It fits poorly when the grantor wants to protect specific beneficiaries such as children from a prior relationship.
Pairing With a Bypass Trust
A marital trust is often paired with a bypass trust (also called a credit shelter trust or “B” trust) in what estate planners call an A-B structure.
The split works like this. When the first spouse dies, assets up to the federal exemption amount flow into the bypass trust. Anything above that amount flows into the marital trust, the “A” trust. The bypass trust uses the deceased spouse’s personal exemption to shelter those assets from estate tax permanently. The marital trust uses the unlimited marital deduction to defer tax on the rest until the surviving spouse dies.
The bypass trust sits outside the surviving spouse’s taxable estate entirely, so any growth in those assets, from investment appreciation or business income, also escapes estate tax. That is the bypass trust’s biggest advantage: it shelters not only the original amount but all future appreciation.
The tradeoff is basis. Because bypass trust assets are not included in the surviving spouse’s estate, they do not receive a stepped-up tax basis when the surviving spouse dies. If the trust holds property that appreciated substantially, the final beneficiaries inherit the basis from the first spouse’s death, and any gains between the two deaths are eventually taxable as capital gains. Marital trust assets, by contrast, are included in the surviving spouse’s estate and do receive a fresh step-up in basis at the second death, which can save beneficiaries a substantial amount in capital gains taxes.3Office of the Law Revision Counsel. 26 USC 2044 – Certain Property for Which Marital Deduction Was Previously Allowed
When Portability May Be Enough
Portability lets a surviving spouse inherit their deceased spouse’s unused federal estate tax exemption without setting up a trust at all. If the first spouse to die used only $3 million of their $15 million exemption, the surviving spouse can claim the remaining $12 million on top of their own, for a combined $27 million exclusion.7Internal Revenue Service. Whats New – Estate and Gift Tax
Portability is not automatic. The deceased spouse’s estate must file a federal estate tax return (Form 706) to elect it, even when no estate tax is owed.8Internal Revenue Service. Instructions for Form 706 The return is due nine months after the date of death, with a six-month extension available on request. If the executor never files, the unused exemption is lost. Late filing relief exists for estates that missed the deadline: a late return can be filed within five years of the date of death, but only if the estate was not otherwise required to file.
Portability is simpler and cheaper than funding a bypass trust, and many couples with estates well under the combined federal exemption now skip the A-B structure. But portability has real limits:
- No growth sheltering. The portable exemption is fixed at the dollar amount unused at the first death. If the surviving spouse’s estate grows through investment gains or inheritance, the exemption doesn’t grow with it. A bypass trust shelters all future appreciation.
- No state tax protection. Portability applies only to federal estate tax. States with their own estate taxes generally do not recognize portability, so a bypass trust may still be necessary to reduce state exposure.
- No creditor protection. Assets owned outright by the surviving spouse are reachable by creditors. Assets in a properly structured trust are not.
For larger or more complex estates, a marital trust combined with a bypass trust still provides advantages portability alone cannot match.
Assets to Keep Out of a Marital Trust
Not everything belongs in a marital trust. Retirement accounts like 401(k)s, IRAs, and 403(b)s should never be transferred directly into the trust. Moving those assets in counts as a withdrawal, which triggers immediate income tax on the entire balance. The better approach is to name the trust as a beneficiary of the retirement account, so the funds pass into the trust at death without triggering a taxable distribution during your lifetime.
Health savings accounts have the same problem. Transferring one to a trust strips away the tax-free treatment for qualified medical expenses. HSAs should be handled through beneficiary designations, not trust funding.
Assets that work well inside a marital trust include investment portfolios, real estate, business interests, and cash. These transfer cleanly and can be managed by the trustee without adverse tax consequences at funding.
Filing Requirements the Trustee and Executor Face
Creating and maintaining a marital trust triggers specific tax filings with hard deadlines.
The most consequential filing happens right after the first spouse dies. The executor must file IRS Form 706, the federal estate tax return, within nine months of the date of death.8Internal Revenue Service. Instructions for Form 706 For a QTIP trust, the marital deduction election is made on Schedule M by listing the qualified property and entering its value. A supplemental return to make the election can only be filed on or before the original Form 706 due date. Miss that window and the QTIP election is gone, which means no marital deduction on those assets and a potentially enormous tax bill at the first death.
Once the trust is running, it is a separate taxpayer. The trustee must file IRS Form 1041, the income tax return for estates and trusts, every year the trust has gross income of $600 or more.9Internal Revenue Service. 2025 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 Income distributed to the surviving spouse is reported on a Schedule K-1 that the spouse includes on their personal tax return. Income retained in the trust is taxed at the trust level, where compressed brackets push income into the highest federal rate much faster than individual brackets do.
Setup and Ongoing Costs
Attorney fees for drafting a marital trust as part of a comprehensive estate plan typically run from $1,000 to $5,000 or more, depending on complexity. Couples with multiple properties, business interests, or blended-family considerations should expect the higher end. Most attorneys will also prepare or update wills, powers of attorney, and beneficiary designations at the same time.
Ongoing trustee fees add annual costs after the trust is funded. A professional or corporate trustee typically charges between 1% and 2% of trust assets per year, with larger trusts often negotiating lower percentage rates. A family member serving as trustee may not charge a fee, but they take on real legal responsibility for investment decisions, distributions, and tax filings. Some families use a professional trustee for the first few years to handle funding and initial administration, then transition to a family trustee once operations stabilize.
These costs are not trivial, but they are small relative to the estate tax savings for couples with assets near or above the exemption threshold. Deferring even a fraction of the 40% federal estate tax rate on a large estate can save millions, which turns setup and management fees into a rounding error by comparison.