When a couple is married, they generally pool their resources together in order to accumulate wealth. They may use these resources to raise a family, purchase property or support themselves. As people approach their retirement, their assets may be significant. They may rely on these assets to support them as they move away from working.
Proper estate planning at this point is often necessary to help preserve the assets should one of the spouses die. Without estate planning tools, a spouses’ passing could result in a taxable event for the couple’s estate. In other words, the surviving spouse could lose significant assets following the death of their loved one because of estate and other taxes.
To avoid this, marital trusts are sometimes used. More specifically, some Michigan couples choose to create a Qualified Domestic Trust. These trusts allow spouses — as long as at least one is a U.S. citizen — to transfer assets to the other spouse following the person’s death.
If a QDT is in place, under 26 U.S.C. section 2056A, there is no tax imposed on certain distributions from the trust. Specifically, income distributions to the surviving spouse are not taxed. Additionally, if a tax on any distribution from the QDT would create a hardship on the surviving spouse, then the distribution is exempt from taxation. Generally, however, other distributions made from the trust are subject to estate taxes.
Using a QDT or other form of trust can be beneficial to many couples in Michigan. While this blog post can only provide general information about trust law, an attorney can give much more specific legal advice pertaining to estate planning.