A Family Bank Trust, or Marital Trust, is a trust strategy in which one spouse establishes a trust for the benefit of the other spouse and/or the descendants of the spouse. Upon the establishment of the trust, the donor spouse will make a gift to the trust, utilizing the donor spouse’s annual Gift Tax Exemption or Lifetime Gifting Exemption, rather than using the spouse’s unlimited marital deduction.
The objective of this type of trust is to exclude the trust assets from the estates of both spouses, while also providing for the benefit of the donee spouse during his or her lifetime. Upon the death of the surviving spouse, the surviving spouse can be given a limited power of appointment, which provides the spouse with the ability to direct or determine how the trust assets will be distributed when he or she passes away.
This type of trust is irrevocable, and once it is signed, the Trustmaker cannot change the language of the trust. Although the language of the trust cannot be changed, provisions are typically placed in the trust to allow flexibility for the Trustee in making distributions of income and principal to the beneficiaries of the trust.