Use of Marital Trusts to Satisfy Elective Share

Clients who do not want to satisfy the Elective Share Amount with an outright bequest to the surviving spouse will require the use of a marital or spousal trust as defined under N.C.G.S. Sections 30-3.2 (3c) (g) and 30-3.3A (e). The marital trust must be for the exclusive benefit of the surviving spouse during his or her lifetime (i.e., there can be no other current mandatory or discretionary trust beneficiary) and have the following trust provisions for the benefit of the surviving spouse:

1. The surviving spouse is either entitled to all of the net income from the trust at least annually, or if the distribution of the net income to the surviving spouse is subject to the discretion of the Trustee, such discretion must be subject to a legally en­forceable ascertainable standard which requires the distribu­tion of trust income for the health, maintenance, and support of the surviving spouse.
2. The principal of the spousal trust must also be available for in­vasion for the benefit of the surviving spouse, in such amounts as determined by the Trustee in its discretion shall be necessary for the surviving spouse’s health, support, and maintenance.
3. In exercising the above-described discretion, the Trustee can be allowed or required under the terms of the marital trust to take into consideration the other income, assets, and means of support available to the surviving spouse.
4. The Trustee of the spousal trust at all times during the lifetime of the surviving spouse must be a “non-adverse” Trustee which is defined under N.C.G.S. Section 30-3.2(3) as either (a) a per­son who does not have any substantial beneficial interest in the trust which would be adversely affected by the exercise or non-exercise of the powers the Trustee possesses over the trust, or (b) a person who is subject to removal as Trustee by the surviving spouse with or without cause, or (c) a corporation licensed to serve as a trustee under the laws of the State of North Carolina (such as a bank or trust company).

The benefit of using a marital trust complying with these require­ments is that the entire value of the marital trust is treated as being allocated to the statutory share required to be set aside for the sur­viving spouse. However, at the surviving spouse’s death, the assets remaining in the marital trust can be distributed to the decedent’s other family members without any direction or control by the sur­viving spouse.