A survivor’s trust is a type of trust that is used in estate planning as part of a joint trust arrangement. It is typically established between spouses and comes into play upon the death of the first spouse. This trust allows the surviving spouse to retain control over the assets in the trust. The trust is also not included in the estate for probate purposes. This arrangement can help provide financial security and flexibility for the surviving partner. You may want to talk to a financial advisor to better understand if a survivor's trust is right for you.
What Is a Survivor's Trust
A survivor's trust is a tool of estate planning designed to provide financial security and continuity for a surviving spouse after the death of their partner. This type of trust is typically established as part of a joint revocable living trust created by a married couple.
Upon the death of the first spouse, the trust splits into two or more sub-trusts, one of which is the survivor's trust. By enabling the surviving spouse to maintain control over their share of the assets, this type of trust can help them have the necessary resources to support their lifestyle and manage ongoing expenses.
One of the primary benefits of a survivor's trust is its ability to simplify the management of assets for the surviving spouse. In particular, the surviving spouse can avoid the often lengthy and costly probate process.
This trust also provides flexibility, allowing the surviving spouse to make decisions regarding the assets, such as selling property or making investments, without needing court approval. Additionally, a survivor's trust can offer tax advantages for very large estates, as it may help minimize estate taxes by utilizing the deceased spouse's estate tax exemption.
When a couple establishes a joint revocable living trust, they typically include provisions for what happens upon the death of either spouse. At that point, the trust is divided, and the survivor's trust is created to hold the surviving spouse's share of the assets.
The surviving spouse typically serves as the trustee, managing the trust’s assets according to the original agreement’s terms. This role allows the surviving spouse to access necessary funds while preserving the estate for future beneficiaries, such as children or other heirs.
Reasons to Use a Survivor's Trust
By structuring a survivor's trust, couples can take advantage of estate tax exemptions, which could help minimize the overall tax burden on the estate.
This is especially important for some high-net-worth individuals who may face substantial estate taxes. The federal estate tax as of 2025 applies only to couples with estates worth over $27.98 million, but the tax can be as high as 40%. State estate taxes may also apply to estates of less value.
Additionally, a survivor's trust can offer asset protection, shielding the surviving spouse's inheritance from creditors or legal claims. This helps preserve the estate's value for future generations.
Survivor's trusts provide improved flexibility and control over asset distribution. The surviving spouse can manage and use trust assets according to their needs. This flexibility helps survivors adapt to changing circumstances, such as unexpected medical expenses or shifts in financial markets.
Moreover, the trust can be tailored to include specific instructions on how and when the assets should be distributed to beneficiaries. In this way, the surviving spouse can honor the deceased spouse's intentions while maintaining control.
In blended families, a survivor’s trust can help maintain harmony by clearly defining asset distribution. This could help reduce potential disputes among heirs. With a clear and legally binding plan, all family members can understand their roles and expectations, fostering a sense of security and unity.
Survivor's Trust vs. Bypass Trust
A bypass trust, also known as a credit shelter trust, is primarily used to minimize estate taxes. When the first spouse dies, a portion of their estate is transferred into the bypass trust, up to the estate tax exemption limit.
A bypass trust is irrevocable, meaning its terms cannot be changed once it is established. The surviving spouse can benefit from the trust’s income and, in some cases, principal, but the assets in the bypass trust are not considered part of the surviving spouse's estate upon their death. This move helps preserve wealth by reducing the taxable estate.
If your primary concern is ensuring that your spouse has full control over the assets and can adapt to changing financial needs, a survivor's trust might be the best option. However, if minimizing estate taxes and preserving wealth for your heirs is a priority, a bypass trust could be more beneficial.
How to Create a Survivor's Trust
Creating a survivor's trust begins with drafting a comprehensive trust document. This document outlines the terms and conditions of the trust, including how assets will be managed and distributed.
An experienced estate planning attorney can help you draft a legally sound trust that aligns with your specific goals. They assist in identifying which assets to include in the trust and determine their allocation between the surviving spouse and other beneficiaries.
After establishing a trust, the next step is to fund it by transferring assets into the trust’s ownership. This involves retitling assets-such as real estate, bank accounts and investments-so that the trust becomes the legal owner. Then, once the trust is created and funded, review and update it regularly and after major life events.
Finally, take note that selecting the right trustee is a key part of creating a survivor's trust. The trustee is responsible for managing the trust's assets and ensuring that the terms of the trust are followed.
Many people choose a trusted family member or friend to serve as the trustee, while others opt for a professional trustee, such as a bank or trust company. The choice of trustee may vary depending on the complexity of the trust, the nature of the assets and the level of expertise required to manage them effectively.
Bottom Line
A survivor’s trust can provide tax benefits by minimizing estate taxes, thereby preserving wealth for future generations. It can also offer protection against creditors and potential legal challenges. Additionally, assets held in a survivor’s trust typically avoid probate, facilitating a smoother transition to beneficiaries.
Tips for Estate Planning
- A financial advisor can provide valuable guidance when creating an estate plan so that it aligns with your specific needs and circumstances. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
- While it may be tempting to save some money and plan your estate by yourself, you should still be careful with these DIY estate planning pitfalls.
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