There are several types of trusts that you can set up to provide benefits to a loved one. For example, an “estate trust” is a common trust set up for someone’s spouse after they pass away. In this situation, the surviving spouse would receive benefits designated in the trust. The main reason for this is to provide a layer of protection for the surviving spouse and ensure they receive their late spouse’s assets.

In an estate trust, your assets would be specifically set out in writing. This would be whatever the person owned and had an interest in, which could include money, real property, stocks, bonds, and/or other types of valuable items. Upon death, these assets would be transferred to the estate holder’s spouse.

Keep in mind that there could be certain restrictions based on your state’s estate and trust laws. However, most states will generally qualify the surviving spouse for a very favorable marital deduction on their taxes, which is a major benefit.

Because of this, you may hear an estate trust called by the name “marital deduction trust”. Without an estate trust, the surviving spouse would face a lot of tax issues and get lesser value of the estate.

How Can I Create an Estate Trust and How Does it Operate?

If you are interested in creating an estate trust for your spouse, you should first consult with a local estate lawyer to become educated on your state’s legal requirements pertaining to estate trusts. A lawyer can inform you about the entire process and any applicable restrictions. A lawyer can also draft the trust, facilitate execution, and file the paperwork on your behalf.

Generally, an estate trust will need to include the following basic information:

  • The names of the parties involved in the estate trust. This would be the grantor of the trust (person making it), beneficiary of the trust (surviving spouse), and trustee (the individual who will be responsible for transferring the property after the grantor dies).
  • A list of assets that fall under the trust, as noted above. Make this as detailed as possible to avoid disputes over what assets are covered under the trust. The entire estate is generally supposed to be transferred in this situation, but the assets will need to be laid out clearly to determine what makes up the estate. Vague descriptions could result in court disputes brought by other interested parties, so be specific as possible.
    • For example, instead of saying “my blue car”, put down the make, model, year, and VIN of the car..
  • Timing details, like how and when the assets will be transferred to the surviving spouse.

Once the trust is drafted, it will need to be signed by all parties and filed according to the appropriate jurisdiction’s requirements. The trust is considered irrevocable, which means it cannot be changed or terminated without the permission of the beneficiary, which would be the surviving spouse. Whether this is allowed will depend on the state’s laws.

When the grantor dies, any disputes over “who gets what” should be eliminated because the trustee will automatically transfer the estate to the surviving spouse. This eliminates the long and sometimes complicated probate process. The surviving spouse can then decide whether to give any of the assets to others, which will usually align with their late spouse’s wishes.

How Can I Terminate an Estate Trust?

While estate trusts are irrevocable, there are some situations where termination is allowed. First, as noted above the beneficiary could agree to terminate the trust. However, this is dependent on state law allowing such an action.

You can also ask the court to terminate an estate trust if it was formed based on an illegal action. Very large or valuable estates can unfortunately be subject to fraud or criminal actions. It is prudent to note that an estate trust cannot be created from fraud, deceit, coercion, or threats of harm.

These things can render the trust void and unenforceable because the grantor would not have voluntarily initiated creation of the trust. For example, someone who is tricked into signing the trust under the assumption they are signing a different document would make the trust unenforceable. Once you get judicial approval, the trust will terminate.

Do I Need a Lawyer to Help With My Estate Trust?

Estate trusts can be very beneficial for the grantor and surviving spouse because of the tax breaks. However, it will affect distributions for other beneficiaries (like children). The married couple will need to be on the same page to determine if an estate trust is the desired path or if a more standard trust naming several beneficiaries would be the best course. A local estate lawyer can help with this decision.

Once you decide what type of trust is right for you and your family, a lawyer can help put the trust together and ensure it complies with all legal requirements. A lawyer can also help with any disputes regarding the trust before and after the grantor passes away. Having this assistance will add a layer of protection and help ensure that the transfer goes smoothly.