If you are married, you may want to leave property to your spouse in a trust rather than outright. A trust lets you support your spouse for the rest of their life and still make sure what is left reaches the people you choose.
This article is about trusts that start at your death to hold an inheritance for someone. They can be written into a Will or a Revocable Trust. They are different from a Revocable Trust you set up and use during your life. To compare a Will and a Revocable Trust, see this article for Washington or for Oregon.
Why this decision matters
A trust for your spouse can:
- Provide income and support for your spouse
- Make sure what is left goes to your children or other beneficiaries, even if your spouse remarries
- Reduce estate tax, especially at the state level
- Provide management if your spouse later cannot handle finances
The right choice depends on your family, the size of your estate, and where you live.
Key terms
- Testamentary trust: A trust that starts at your death to hold property for someone, such as a surviving spouse or a child. It can be written into a Will or a Revocable Trust.
- Trustee: The person or company that manages the trust and makes distributions to your spouse. Your spouse can sometimes be the Trustee.
- Marital deduction: The rule that lets you leave any amount to your spouse without estate tax at your death. The tax is put off until your spouse dies.
- Exemption: The amount each person can leave free of estate tax. Washington, Oregon, and the federal government each set their own.
Common trusts for a spouse
Married couples often use one or more of these trusts. Besides providing for your spouse, they also allow for estate tax planning if needed. Your attorney can explain which fit your family and the size of your estate.
Credit Shelter Trust
Also called a Bypass Trust or Family Trust. At the first death, property up to the exemption amount goes into this trust. Your spouse can receive income, and often principal for their needs. What is left is not taxed when your spouse dies. This uses the first spouse’s exemption instead of losing it.
Disclaimer Trust
Everything is left to your spouse, but your spouse may refuse, or “disclaim,” part of it within nine months after your death. Whatever they disclaim goes into a Credit Shelter Trust. This lets your spouse decide after your death, when the real numbers are known.
Marital Trust
A Marital Trust, also called a QTIP Trust, is usually designed to qualify for the marital deduction, so no estate tax is due at the first death.
A Marital Trust must distribute all of the income earned on its assets to your surviving spouse at least once a year. After your spouse dies, what is left passes as your plan directs. That is why a Marital Trust is common in second marriages, where you want to support your spouse and still protect your children’s inheritance.
Washington and Oregon differences
Federal estate tax affects few families today. State estate tax is different. Neither Washington nor Oregon lets a surviving spouse use the exemption of the spouse who died first. Without a trust, the first spouse’s state exemption can be lost.
For the current exemption amounts, see this article.
Estate tax: Washington’s exemption is high enough that many couples are not affected. Couples whose combined estate is above it often benefit from a credit shelter or Disclaimer Trust.
Community property: At the first death, each spouse controls only their own half of community property. The survivor already owns the other half. Community property can also get a fresh tax value on both halves at the first death. That can reduce capital gains tax if the survivor later sells.
Estate tax: Oregon’s exemption is much lower than Washington’s, so far more couples are affected. A home and retirement savings can be enough. A credit shelter or Disclaimer Trust is common in Oregon plans for married couples.
The elective share: Oregon lets a surviving spouse claim a share of the estate, even if the plan leaves them less. The share grows with the length of the marriage, up to a third after 15 years. A plan that leaves your spouse only a lifetime trust needs to account for this. A premarital or postnuptial agreement can waive it.
Factors to consider
- Your spouse’s needs: Their age, health, income, and how those may change.
- The size of your estate: Especially compared with your state’s exemption.
- Your other beneficiaries: How the trust for your spouse affects what your children or others eventually receive.
- Flexibility: Whether the Trustee can adjust distributions, or a new Trustee can be appointed, as life changes.
- Who serves as Trustee: Your spouse, another family member, or a professional.
Blended families
If you have children from an earlier relationship, a trust for your spouse can support your spouse for life and still protect your children’s inheritance.
Choose the Trustee carefully. If your spouse is the Trustee of a trust that will later go to your children, their interests can pull in different directions. Some families name a co-Trustee or an independent Trustee to ensure fairness. Clear rules and open conversations now can prevent hard feelings later.
Want to read more?
These articles are optional.
- Outright or in a trust: The basic choice for any beneficiary. See this article.
- Estate tax: Current exemption amounts. See this article.
- Will or Revocable Trust: Either can hold a trust for your spouse. See this article for Washington or for Oregon.
- Glossary: Common estate planning terms. See this article.
- Beneficiary designations: How retirement accounts, life insurance and other property outside your Will fit with your plan. See this article.