You’ve found the love of your life, and as you’ve built your life together, you’ve likely weathered your fair share of storms and grown stronger because of them. Estate planning to protect your spouse is an important consideration now that you are married. You are uniquely situated to provide meaningful support for your spouse after your passing through special estate planning tools available only to legally married individuals. Considering estate planning to protect your spouse helps ensure they are cared for in the future.
If one spouse individually owns more money or property than the other, a lifetime qualified terminable interest property (QTIP) trust allows the wealthier spouse (the grantor spouse) to transfer money and property into the trust for the benefit of the less wealthy spouse (the beneficiary spouse). This alternative is generally preferable to making outright gifts to a spouse, as it may offer some creditor protection. A lifetime QTIP trust can also be a valuable strategy for couples in a second or subsequent marriage. During their lifetime, the beneficiary spouse will receive the income generated by the trust assets and may also access the trust principal for specific purposes, such as healthcare, education, or other needs as defined by the grantor spouse. This structure enables the grantor spouse to provide for their partner during their lifetime while preserving the remaining assets for the grantor spouse’s children from a prior marriage or other chosen beneficiaries.
When the beneficiary spouse dies, the remaining property in the trust is included in their estate, utilizing their unused federal estate tax exemption. If the beneficiary spouse dies first, the remaining trust property can continue (subject to applicable state law) for the grantor spouse’s benefit. Estate planning to protect your spouse can significantly impact their financial security after your passing. If the lifetime QTIP trust is structured correctly, any remaining trust assets may be excluded from the grantor spouse’s estate upon their death. After both spouses have passed, the remaining trust property is distributed to the beneficiaries designated by the grantor spouse when the trust was initially created.
A lifetime QTIP trust can offer meaningful benefits, but it may have unintended effects if a marriage ends in divorce. Because the trust is irrevocable, the former spouse could remain entitled to income for life unless the trust defines explicitly the beneficiary spouse as the current spouse. With thoughtful drafting and the help of an experienced estate planning attorney, you can ensure that the trust reflects your wishes even if life takes an unexpected turn. In this light, estate planning to protect your spouse continues to hold value.
A spousal lifetime access trust (SLAT) enables the grantor spouse to gift money or property into a trust for the benefit of the beneficiary spouse, thereby protecting the money and property from creditors and estate taxes while still allowing the grantor spouse to enjoy the money or property through the beneficiary spouse. Unlike a lifetime QTIP trust, this type of trust does not require that the beneficiary spouse be given access to the trust’s income. Instead, the beneficiary spouse may be given access to income or principal during their lifetime, depending on the grantor spouse’s wishes. The goal of this strategy is to use the grantor spouse’s estate tax exemption instead of the beneficiary spouse’s. Additionally, other beneficiaries, such as children or grandchildren, can be named as current beneficiaries of the trust.
Similar to lifetime QTIP trusts, SLATs also carry risks related to divorce. If you divorce, the beneficiary spouse retains access to the property in the SLAT. However, the grantor spouse likely loses access to the trust upon divorce, as their only connection to the assets was indirectly through the beneficiary spouse. Since the SLAT is irrevocable, there is no way to undo the transfer or reclaim the assets. That is why many people include provisions limiting benefits to a current spouse or add other beneficiaries, such as children, to preserve flexibility. Such measures emphasize the importance of estate planning to protect your spouse.
Note: If both spouses wish to utilize their own exemptions during their lifetimes through estate planning tools such as SLATs, special attention must be given to ensure that reciprocal trusts are not drafted, which could undo all the planning. As experienced attorneys, we can help ensure that both spouses’ goals are met in the most tax-efficient manner.
Suppose you and your spouse reside in or acquire property in a community property state. In that case, it is essential to determine the ownership interests in all property included in your estate plan. If community property is going to fund one of these trusts, it may be necessary to enter into a partition agreement or other marital agreement. Because this step may alter the current ownership of the property, it is crucial that you work with an experienced attorney who can explain the process and its results.
With the exceptionally high estate tax exemption of $13.99 million per person in 2025, you may feel that you do not need to worry about estate tax reduction strategies. However, this provision will sunset on December 31, 2025, unless Congress takes additional action. If you die in 2026 or after, there is a possibility that the estate tax exemption could be reduced back to $5 million, adjusted for inflation. Unfortunately, without a crystal ball, there is no way to know what the exemption amount will be if you die after the sunset date. However, portability is a handy tool for battling this uncertainty.
Portability is essential in estate planning to protect your spouse, as it allows a surviving spouse to use any unused portion of their deceased spouse’s federal estate and gift tax exclusion, known as the deceased spouse’s unused exclusion (DSUE) amount. This means that the surviving spouse can combine their exclusion with what remains of their spouse’s, which increases the amount that the surviving spouse can transfer free of gift and estate tax. However, to take advantage of portability, a federal estate tax return (Form 706) must be filed promptly (usually within nine months of the deceased spouse’s death, or longer if an extension has been granted) when the first spouse passes. Without this filing, the surviving spouse will lose the DSUE amount and will have only their exclusion amount to use.
Note: The DSUE can be used only for your most recently deceased spouse. If you remarry, you must use the first spouse’s DSUE before your new spouse dies—otherwise, you will lose the ability to use the first spouse’s unused exclusion.
You work every day to build a wonderful life for yourself and your family. We are here to help design a unique plan to ensure that you, your spouse, and your family will be taken care of now and in the future, upon your passing. Estate planning to protect your spouse should be a priority for the future. Book a Discovery Call.
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