A non-marital trust is an estate planning tool that holds assets from a deceased spouse’s estate in a way that keeps them out of the surviving spouse’s taxable estate, preserving the deceased spouse’s federal estate tax exemption while still providing the survivor with income and limited access to principal. For 2026, the federal exemption is $15 million per person, so a couple using this strategy can shelter up to $30 million from the 40% federal estate tax.1Internal Revenue Service. What’s New — Estate and Gift Tax Even at today’s high exemption, the trust has non-tax uses that keep it in regular rotation for many families.
How the Trust Actually Works
Federal law gives married couples an unlimited marital deduction. One spouse can leave everything to the other with no estate tax at the first death.2Office of the Law Revision Counsel. 26 USC 2056 – Deduction for Transfers to Surviving Spouse That sounds like the whole answer, but it isn’t. When the surviving spouse later dies, their estate contains their own assets plus everything inherited from the first spouse, and only one exemption is available to offset the tax.
A non-marital trust fixes that by splitting the deceased spouse’s estate into two pools at death. One pool passes to the survivor (or into a marital trust) and uses the unlimited marital deduction. The other pool, up to the deceased spouse’s remaining exemption, funds the non-marital trust. Because those assets don’t pass to the survivor outright, they don’t qualify for the marital deduction, but the deceased spouse’s own exemption covers them and no estate tax is owed.
The payoff comes later. Everything inside the non-marital trust, including every dollar of future growth, is permanently excluded from the surviving spouse’s estate. If the trust assets double over the survivor’s lifetime, that appreciation never faces estate tax.
The trust document usually gives the surviving spouse the right to receive trust income and, often, distributions of principal. Principal distributions are confined to an “ascertainable standard” tied to health, education, support, or maintenance. That limit isn’t cosmetic. It prevents the IRS from treating the survivor’s access as a general power of appointment, which would pull the trust assets back into their taxable estate and defeat the whole structure.3Office of the Law Revision Counsel. 26 USC 2041 – Powers of Appointment
Where the A/B Labels Come From
Estate plans often describe this setup as an A/B structure. The “A” trust is the marital trust, holding assets covered by the unlimited marital deduction. The “B” trust is the non-marital trust (also called the bypass trust or credit shelter trust), holding assets that use the deceased spouse’s exemption. Two labels, two tax treatments, one estate.
Some plans add a QTIP (Qualified Terminable Interest Property) trust. A QTIP qualifies for the marital deduction because the surviving spouse receives all income for life, but the deceased spouse’s plan controls who gets the assets after the survivor dies. The executor must affirmatively elect QTIP treatment on Form 706. Whether a plan uses a plain A/B split, layers in a QTIP, or takes a more flexible route depends on family size, asset mix, and goals.
Portability or a Non-Marital Trust?
Since 2011, surviving spouses have had a simpler alternative: portability. When the first spouse dies, the executor can file Form 706 to transfer the deceased spouse’s unused exemption (the DSUE amount) to the survivor, who then adds it to their own exemption.4Internal Revenue Service. Instructions for Form 706 (09/2025) – Section: Part VI Portability of Deceased Spousal Unused Exclusion With a $15 million per-person exemption in 2026, portability alone can put up to $30 million of combined shelter in the survivor’s hands without any trust.1Internal Revenue Service. What’s New — Estate and Gift Tax
So why still bother with the trust? Several reasons keep it on the table.
- Portability freezes the deceased spouse’s unused exemption at a dollar amount. A non-marital trust shelters the assets themselves, so all future appreciation escapes estate tax too. Twelve million that grows to twenty is twenty sheltered, not twelve.
- The generation-skipping transfer (GST) tax exemption is not portable. Each spouse has their own, equal to the basic exclusion amount of $15 million for 2026, and the only way to use the first spouse’s is to allocate it to a trust at death. Families who want to pass wealth to grandchildren have no substitute here.5Office of the Law Revision Counsel. 26 USC 2631 – GST Exemption
- Assets held in a properly drafted non-marital trust generally sit beyond the reach of the surviving spouse’s future creditors, lawsuits, and claims. Property inherited outright does not.
- The trust locks in the deceased spouse’s wishes about who ultimately inherits. If the surviving spouse remarries, trust assets can’t be redirected to a new spouse or their family.
- Portability depends on a timely Form 706. Miss the filing and the deceased spouse’s exemption is gone. A non-marital trust is built into the estate plan documents and doesn’t rely on an election.
For couples whose combined estate falls comfortably below $30 million and who have no GST or blended-family concerns, portability alone may be enough. For larger estates, blended families, or anyone who wants creditor protection and growth sheltering, the non-marital trust still does more work.
How the Trust Gets Funded
Two funding methods dominate: the bypass trust and the disclaimer trust. Both reach the same tax result but differ in timing and flexibility.
Bypass Trust
A bypass trust funds automatically at the first death. The plan contains a formula clause directing the executor to move assets equal to the deceased spouse’s remaining federal exemption into the trust. The surviving spouse doesn’t have to decide anything. The executor selects the assets, re-titles them, and the trustee takes over.
The appeal is certainty. The plan runs itself regardless of what the survivor is going through. The downside is rigidity: once the first spouse dies, the formula locks in even if tax law or the family picture has shifted since the documents were signed.
Disclaimer Trust
A disclaimer trust puts the decision in the surviving spouse’s hands. The plan initially leaves everything to the survivor. The survivor can then refuse to accept (disclaim) some portion of the inheritance, and the disclaimed assets flow into a pre-established non-marital trust.
For the IRS to recognize the disclaimer, strict rules apply: the refusal must be irrevocable and unconditional, in writing, and received by the executor within nine months of the date of death. The surviving spouse cannot have already accepted benefits from the disclaimed property and cannot direct where it goes.6Office of the Law Revision Counsel. 26 USC 2518 – Disclaimers The property must pass to the trust without the disclaiming spouse’s direction.7eCFR. 26 CFR 25.2518-2 – Requirements for a Qualified Disclaimer
The advantage is flexibility. Nine months after the first death, the surviving spouse has a much clearer view of their needs and the tax environment. The risk is disclaiming too little, too much, or missing the deadline altogether.
Income Tax Inside the Trust
The non-marital trust is its own taxpayer. The trustee files Form 1041 each year.8Internal Revenue Service. Estates and Trusts How income is taxed depends on whether it stays in the trust or gets paid out.
Income distributed to the surviving spouse is taxed on the spouse’s personal return at their individual rate. The trust gets a deduction for the distribution and sends the survivor a Schedule K-1 for their Form 1040.
Income retained inside the trust runs into severely compressed brackets. For 2026, trust income above $16,000 hits the top 37% federal rate. An individual doesn’t reach that rate until taxable income exceeds roughly $626,000. A trust holding $50,000 of investment income pays the same top rate as a single filer earning more than half a million.
The practical rule: trustees should generally push income out to the surviving spouse, because the spouse’s rate is almost always lower. Retaining income only makes sense for a real non-tax reason, like shielding funds from a beneficiary’s creditors.
Which Assets Belong in the Trust
Picking the right assets matters as much as the amount.
Lean Toward Growth
Because all future appreciation inside the trust escapes estate tax, high-growth assets belong here: business interests, growth stocks, commercial real estate. Stable, income-producing assets like bonds and cash tend to fit better on the marital side, where they support the survivor’s living expenses without wasting the trust’s growth-sheltering advantage.
The Second Step-Up You Give Up
When someone dies, their assets generally get a new tax basis equal to fair market value at death, erasing built-in capital gains.9Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Assets going into the non-marital trust get that step-up at the first spouse’s death. They do not get a second step-up when the surviving spouse later dies, because they aren’t in the survivor’s estate.
If trust assets appreciate significantly during the survivor’s lifetime, the children (or other remainder beneficiaries) inherit them at the original stepped-up basis and may face a sizable capital gains bill on sale. Assets the survivor owns outright at death would get a fresh step-up, wiping those gains out. This is a real cost of the structure. Estate planners sometimes write in a limited power of appointment for the surviving spouse that triggers a basis adjustment. For estates well below the exemption, the lost second step-up can outweigh the estate tax benefit of sheltering.
Retirement Accounts Are a Poor Fit
Qualified retirement accounts like 401(k)s and IRAs are income in respect of a decedent (IRD) assets. They carry a built-in income tax liability because the original owner never paid tax on the money. When these land in a non-marital trust, the trust pays income tax on withdrawals at its compressed rates. A partial offset exists: anyone who includes IRD in income can deduct the portion of federal estate tax attributable to that income.10eCFR. 26 CFR 1.691(c)-1 – Deduction for Estate Tax Attributable to Income in Respect of a Decedent It softens the sting but doesn’t erase it. Most planners leave retirement accounts to the surviving spouse outright, or in a conduit trust that passes distributions through at individual rates, and fund the non-marital trust with assets that don’t carry built-in income tax.
Reasons That Have Nothing to Do With Taxes
The tax story gets the headlines, but the non-tax features often carry equal weight.
Assets in a properly structured non-marital trust are generally shielded from the surviving spouse’s creditors. If the survivor faces a lawsuit, a business failure, or long-term care costs, the trust assets sit outside what creditors can reach. Property inherited outright is fully exposed.
In blended families, the trust guarantees that the deceased spouse’s children receive their inheritance regardless of what happens after the first death. If the surviving spouse remarries, trust assets remain locked in for the original beneficiaries rather than drifting into a new spouse’s hands.
The trust also skips probate at the surviving spouse’s death. The assets are already held by the trust and pass to the remainder beneficiaries under its terms without court involvement.
Picking a Trustee
The trustee manages investments, handles tax filings, applies the ascertainable standard to distribution requests, and balances the surviving spouse’s needs against the remainder beneficiaries’ interests. It’s a long job, often lasting decades.
An individual trustee, usually a family member or close friend, fits a straightforward trust with uncomplicated assets and beneficiaries who get along. Cost is lower and the personal connection can put the surviving spouse at ease. The risks: burnout, conflicts of interest when the trustee is also a beneficiary, and the possibility of death or incapacity before the trust ends.
A corporate trustee, typically a bank or trust company, brings continuity, professional investment management, and impartiality. For trusts expected to last decades, hold complex assets, or serve beneficiaries with competing interests, the fees are often money well spent. Annual fees generally range from about 0.3% to over 1% of trust assets depending on the institution and the work involved. Many families name a family member and a corporate trustee as co-trustees to combine personal knowledge with professional administration.
When It Still Makes Sense in 2026
With the federal exemption at $15 million per person for 2026, most married couples won’t owe federal estate tax regardless of what they do.11Internal Revenue Service. Rev. Proc. 2025-32 Future legislation can change that, and roughly a dozen states run their own estate or inheritance taxes with exemptions far below the federal threshold. A non-marital trust funded to the state exemption amount can save hundreds of thousands at the state level even when the federal number is irrelevant.
The trust also remains the right choice for families who want to preserve the GST exemption for multigenerational planning, protect against the surviving spouse’s potential creditors, keep control over who ultimately inherits, or shelter future growth in a way portability can’t match. For couples whose estate sits comfortably below even state exemption thresholds and who have no blended-family concerns, a portability election with outright inheritance is cleaner and keeps the second basis step-up in play. The right answer turns on the full picture: estate size, family dynamics, state of residence, and how much the first spouse to die wants to control after they’re gone.