Making the decision between a marital trust and a family trust can be difficult. Both have their own advantages and disadvantages, and it can be hard to decide which is the best option for you. In this personal finance guide, we will compare both options and look into the pros and cons of each.
By the end of this article, you will hopefully have a better understanding of which type of trust is right for you!
Marital Trust Vs Family Trust Table of Contents
What is a Marital Trust?
A marital trust is a legal arrangement in which property is held by one spouse for the benefit of the other spouse. The main purpose of a marital trust is to provide financial security for a surviving spouse after the death of the first spouse.
What is a Family Trust?
A family trust is an arrangement in which a trustee—usually a family member, friend, or professional—holds and manages property for the benefit of named beneficiaries. The terms of the trust are set forth in a written document, which can be as simple or complex as the grantor desires.
What is The Difference Between a Marital Trust and a Family Trust?
When it comes to personal finance and estate planning, there are a lot of options available to couples. One option that is often considered is creating either a marital trust or a family trust. So, what's the difference between the two? And which one is right for you?
A marital trust is created during the marriage and typically provides for the surviving spouse. Upon the death of the first spouse, the assets in the trust are distributed to the surviving spouse. A family trust, on the other hand, can be created during marriage or after divorce.
A family trust typically provides for children from a previous marriage or relationship. The assets in a family trust are not subject to probate, which can save time and money. And, assets in a family trust are not subject to estate taxes.
What Are The Different Types of Marital Trust?
There are several different types of marital trusts, each with their own set of advantages and disadvantages.
The most common type of marital trust is the joint trust, which is created by a husband and wife during their marriage. This type of trust allows for the couple to manage their assets jointly and can provide some tax benefits. However, if one spouse dies, the other spouse will inherit all of the assets in the trust.
Separate Property Trust
Another type of marital trust is the separate property trust, which is created when one spouse transfers some of their assets into a trust for the benefit of the other spouse. This can be done for estate planning purposes or to protect assets from creditors. However, this type of trust can complicate things if the couple gets divorced, since the assets in the trust will be considered separate property.
Community Property Trust
Finally, there is the community property trust, which is created when both spouses transfer their assets into a trust. This type of trust can provide some tax benefits and can make it easier to manage assets during a divorce. However, it can also complicate things if one spouse dies, since the other spouse will inherit all of the assets in the trust.
What Are The Different Types of Family Trust?
There are two different types of family trust:
- Living Trust
- Testamentary Trust
A living trust is created during your lifetime, while a testamentary trust is created after your death through your will.
Both trusts can be used to provide for your loved ones, but there are some key differences. With a living trust, you can appoint a trustee to manage the assets in the trust. This can be helpful if you become incapacitated or otherwise unable to manage your own finances.
What Are The Advantages of a Marital Trust?
There are many advantages to setting up a marital trust, including:
- protecting your assets from creditors in the event of divorce
- ensuring that your spouse receives their share of your estate in the event of your death
- avoiding probate
What Are The Advantages of a Family Trust?
A family trust can offer a number of advantages, including:
- Asset protection from creditors and lawsuits
- Potential estate tax savings
- Flexibility in how assets are distributed to beneficiaries
- The ability to control how and when assets are distributed after your death.
What Are The Disadvantages of Marital Trust?
There are a few disadvantages of setting up a marital trust, which include:
- You and your spouse will have to give up ownership of the assets that are placed in the trust.
- The terms of the trust cannot be changed once it is established.
- If one spouse dies, the other spouse may not have access to the trust assets right away.
- It can be expensive to set up and maintain a marital trust.
What Are The Disadvantages of Family Trust?
There are a few disadvantages of setting up a family trust, which include:
- The potential for high costs. Hiring a lawyer to help set up and manage a trust can be costly, and there may be additional fees associated with setting up and maintaining the trust itself.
- The possibility of creating conflict within the family. While trusts can be an effective way to manage assets and protect loved ones, they can also create conflict if not managed properly. If family members do not agree on how the trust should be managed or who should benefit from it, this can lead to disagreements and even legal battles.
- The need for professional advice. Trusts are complex financial instruments, so it is important to seek professional advice before setting one up. This can help ensure that the trust is set up correctly and that it meets your family's needs.
So, Which One Should You Use?
The answer to this question depends on your individual circumstances. If you have a spouse and children, then a family trust might be the best option. On the other hand, if you're single or don't have any children, then a marital trust could be more beneficial. Ultimately, it's up to you to decide which type of trust best suits your needs.
If you're still not sure which one to choose, then it might be a good idea to speak with a financial advisor. They can help you weigh the pros and cons of each option and make an informed decision about what's best for you.
What Are Some Alternatives to Using a Marital Trust or a Family Trust?
If you're not interested in using a marital trust or a family trust, there are a few other options available to you. You could set up an irrevocable life insurance trust, which would hold your life insurance policy and pay out the death benefits to your beneficiaries upon your death.
Alternatively, you could create a charitable remainder trust, which would allow you to donate a portion of your assets to a charity of your choice while still providing for your loved ones after your death.
What Are Some Tips For Using a Marital Trust?
Here are some tips to keep in mind when using a marital trust:
- Make sure that both spouses understand the terms of the trust and agree to them.
- Keep good records of all assets placed into the trust.
- Be aware of tax consequences when placing assets into the trust.
What Are Some Tips For Using a Family Trust?
Here are some tips to keep in mind when using a family trust:
- You should keep the terms of the trust as simple as possible to avoid any confusion later on.
- Be sure to communicate with all members of your family about the trust and what it entails. This will help ensure that everyone is on the same page and knows what to expect.
- Keep good records of all transactions made through the trust, as this will make things easier to track and manage.
- Have a plan in place for how the trust will be managed and operated over time, so that everyone knows what their role is and what is expected of them.
- Make sure to review the terms of the trust regularly, as circumstances can change and you may need to make adjustments.