ESTATE TRUST
Back to GlossaryDefinition
A trust which grants the surviving spouse a testamentary general power of appointment over the trust assets. Because of the spouse's general power of appointment over the trust's assets, the fair market value of 'the trust will be eligible for the unlimited marital deduction at the death of the first-to-die spouse.
Summary
An Estate Trust is a special type of marital trust designed to help married couples minimize estate taxes. When one spouse dies, their assets go into this trust for the benefit of the surviving spouse. The key feature is that the surviving spouse gets a 'testamentary general power of appointment' - meaning they can decide in their will who gets the trust assets when they die. This power is so broad that the IRS treats it as if the surviving spouse actually owns the assets, which allows the estate to claim the unlimited marital deduction and pay no estate taxes when the first spouse dies.
Usage Context
Understanding Estate Trusts is crucial when studying advanced estate planning strategies, marital deduction planning, and comparing different types of trusts used to minimize estate taxes for married couples.
Common Confusions
- Thinking the surviving spouse must receive income from the trust (unlike QTIP trusts, this isn't required)
- Confusing Estate Trusts with QTIP trusts - both qualify for marital deduction but have different requirements
- Believing the surviving spouse owns the assets outright (they're still in trust)
- Assuming the trust assets avoid estate tax entirely (they're just deferred until the second spouse dies)
