The use of a testamentary spousal trust is an important estate planning consideration for those looking to provide security for a surviving spouse as well as any subsequent beneficiaries. Created through a will, a testamentary spousal trust is efficient in its ability to provide protection of family assets.
A spousal trust allows assets to rollover tax-free from a taxpayer into a trust for the benefit of a taxpayer’s spouse. In order to qualify as a spousal trust, the following terms must be present in the trust:
A spousal trust is normally set up in a will and is referred to as a spousal testamentary trust. Often, the surviving spouse is appointed as the trustee of a spousal trust. However, if there is a risk that the spouse will not be able to manage the capital in the trust, someone other than the spouse can be appointed as the trustee, and/or the spouse can be a co-trustee. As the trust will continue until the passing of the spouse, it is usually advisable to appoint a trustee that is the same age or younger than the spouse. Caution should be used in appointing trustees who are the ultimate beneficiaries of the trust. This could result in them restricting capital distributions to increase the capital in the trust from which they will benefit.
The main advantages of setting up a spousal trust are:
A spousal trust is a useful planning tool that allows the capital of the deceased spouse to be used to generate an income for the surviving spouse (and capital when required) while providing a level of certainty that the assets will not be diverted to the family of a potential future spouse. This certainty is accomplished by the testator directing where the residual capital will flow on the death of the surviving spouse.
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