What is a "Marital Deduction Amount" and a "Tax Free Amount"?

Estate tax planning for married couples usually involves dividing all the assets into two shares, one share owned by each spouse.  Remember that most, if not all, assets on hand when the first spouse dies are likely to be community property.  Therefore, the estate of the first spouse to die (sometimes referred to as the "deceased spouse") consists of the deceased spouse's half of the community property plus the deceased spouse's separate property, if any. (A married couple's estate plan can be set out either in separate Wills or in a revocable (living) trust, which is usually a joint revocable trust in Texas.  NOTE: We will just use the term "Will" to refer to both instruments.)  The deceased spouse's ownership interest in the assets constitutes his or her estate for federal estate tax purposes.  Assuming no "taxable gifts" were made by the deceased spouse during life, the deceased spouse's estate would have available to it the 2026 estate tax exclusion amount, which is $15,000,000.  We will refer to the $15,000,000 estate tax exclusion amount as the "Tax Free Amount." The balance of the deceased spouse's estate, if any (i.e., the amount owned by the deceased spouse that exceeds the Tax Free Amount) is usually left either outright to the surviving spouse or to a Marital Trust for the surviving spouse.  If the surviving spouse is a U. S. citizen, this distribution will qualify for the estate tax marital deduction and, thus, will defer estate taxes on that excess amount until the death of the surviving spouse.  This excess amount can be referred to as the "Marital Deduction Amount." The decision whether to leave the Marital Deduction Amount outright to the surviving spouse or to a Marital Trust is based primarily on (i) the total value of the excess amount (is it sufficient to justify another trust?), (ii) the need or desire to protect the excess amount from creditors' claims (such as a tort creditor who sues the surviving spouse and obtains a judgment), and (iii) the deceased spouse's desire for "ultimate control"–to control where the assets remaining in the Marital Trust go when the surviving spouse dies (or, put another way, to prevent the surviving spouse from directing these assets to persons chosen by the surviving spouse, such as a new spouse, who the deceased spouse would not want to benefit).

What is a Bypass Trust?
A Bypass Trust is a trust designed to hold assets of the deceased spouse having a total value equal to (or not exceeding) the Tax Free Amount. The surviving spouse or any other qualified person or entity may serve as trustee of a suitably drafted Bypass Trust. Under the terms of a typical Bypass Trust, distributions can be made to the surviving spouse to provide for his or her health, support and maintenance in accordance with his or her accustomed standard of living. A Bypass Trust can be drafted to allow distributions to be made to children and other descendants as "secondary" beneficiaries while the surviving spouse is living. Those secondary beneficiaries are often in lower tax brackets than the trust itself and the surviving spouse. Thus, including a power to make distributions from the Bypass Trust to children and grandchildren sets up the possibility of trust income being taxed at very low rates. When trust income is distributed out of the trust to a permissible beneficiary, the beneficiary pays income tax on the distributed income, not the trust. The surviving spouse is sometimes given a testamentary"power of appointment" (described below) over the Bypass Trust. In spite of the fact that the surviving spouse has use of the trust assets during his or her lifetime (and may be given control over the disposition of the property at death), the assets in a properly drafted and administered Bypass Trust will not be taxed in the surviving spouse's estate at the time of that spouse's death–no matter what those assets are worth at that time and no matter what the estate tax exemption amount is at that time. The Bypass Trust terminates upon the death of the surviving spouse or, if later, the date when the youngest child reaches a designated age.
What is a Marital Trust?

A Marital Trust is a trust designed to hold the Marital Deduction Amount, i.e., the portion of the deceased spouse's estate in excess of the amount that is exempt from estate tax (i.e., the Tax Free Amount). The value of property passing to the Marital Trust is deducted from the taxable estate of the deceased spouse, effectively deferring estate taxes on these assets until the surviving spouse's death. The surviving spouse or any other qualified person or entity may serve as trustee of a suitably drafted Marital Trust. Per federal tax law, all (net) income earned by the Marital Trust assets must be distributed to the surviving spouse each year. Distributions of principal can be made to the surviving spouse to provide for his or her health, support and maintenance in accordance with his or her accustomed standard of living. Upon the death of the surviving spouse, the assets in the Marital Trust (on which estate taxes were deferred), as well as the surviving spouse's individually owned assets, will be subject to estate tax to the extent the total exceeds the surviving spouse's Tax Free Amount.

As a result of the One Big Beautiful Bill signed into law in July 2025, the basic estate tax exclusion amount was set at $15 million as of January 1, 2026.This amount will be adjusted for inflation each year.  Some married couples prefer to use a Marital Trust, rather than a Bypass Trust, for the entire amount owned by the deceased spouse (i.e., the first spouse to die). The primary reason to do that is to obtain a second "adjustment" to income tax basis for the assets held in the Marital Trust when the surviving spouse dies. If the assets have increased in value by the time of the surviving spouse's death, that adjustment will be a "step up" in basis. In view of the fact that the Marital Trust assets will be included in the surviving spouse's estate (unless the executor of the deceased spouse's estate elects otherwise in a timely manner after the deceased spouse’s death), if it appears that one exemption from the federal estate tax will not be sufficient to avoid estate taxes on the surviving spouse's death, the executor of the deceased spouse's estate can file a federal estate tax return (Form 706) within nine months of the deceased spouse's death (or by the extended due date, if elected) and make the portability election. When the portability election is made, the deceased spouse's unused exemption amount, called the "DSUE Amount" (which is the full amount passing into the Marital Trust plus all amounts passing directly to the surviving spouse, assuming the surviving spouse is a US citizen), can be transported to the surviving spouse, which will result in the surviving spouse having more than just one exemption from the estate tax when the surviving spouse dies (i.e., his/her own exemption and the DSUE Amount of the deceased spouse that was transported to the surviving spouse by filing the Form 706 and making the portability election).

When deciding between a Marital Trust and outright gifts to the surviving spouse, there are both tax and non-tax reasons for choosing a Marital Trust. Like all irrevocable trusts, the Marital Trust can be designed to protect the assets from loss due to a divorce or other lawsuit, can provide for management of the trust assets in the event the surviving spouse loses his or her mental capacity or is not financially astute, and can protect the trust assets from being diverted to a new spouse of the surviving spouse or to other persons who the deceased spouse does not want to benefit. In addition, use of a Marital Trust can facilitate "second generation planning" for children and grandchildren.

What is a Contingent Trust?
AContingent Trust is a trust designed to hold assets that would otherwise be distributed to an individual who is either mentally incapacitated or too young to manage the assets prudently. It enables the trustee to make distributions to or for the benefit of that person, without subjecting the assets to a court-supervised legal guardianship.
What is a Power of Appointment?

A "power of appointment" enables the beneficiary of a trust to decide to whom the trust's assets will pass. A "testamentary" power of appointment means that the power may be exercised in the beneficiary's Will and will be effective on the beneficiary's death. Powers of appointment may be "limited" so that the group of people to whom the trust assets may be given is restricted, or "general" so that the beneficiarymay give the trust assets to his or her estate, and thereby, to anyone named in his or her Will.

What is a Fiduciary?
"Fiduciary" is the term applied to anyone acting on behalf of another to manage assets that have been entrusted to the Fiduciary. The term includes an executor (who has been entrusted by the decedent to manage the assets of the decedent's estate for the estate's beneficiaries) and a trustee (who has been entrusted with the assets of the trust to manage them for the trust's beneficiaries). The same person can be both a "Fiduciary" and a beneficiary.
What is a Guardian Declaration?
A "Guardian" is the person who is charged with caring for minor children. (Guardians can also act on behalf of an adult incapacitated child.) In Texas, children are treated as minors until they reach the age of 18. Guardians may be named in the Will or in a separate instrument titled "Declaration of Guardian for Minor Children." A guardian may be named for the "person" of the minor, for the "estate" of the minor, or both. A guardian of the person is responsible for making parental decisions regarding the minor's upbringing, education and welfare. A guardian of the minor's estate is charged with managing funds and other assets that belong to the minor (but not for funds and other assets that are placed into trust for the minor, which are managed by the trustee of the trust, and not for funds and other assets held in a Uniform Transfers to Minors Act account, which are managed by the custodian). The same person may be named to serve as both guardian of the minor's person and guardian of the minor's estate. This person may, but need not be, the same person who serves as the trustee of any trust created for the minor's benefit and/or as the custodian of the minor's UTMA account. Co-Guardians of a minor's person may be named, but only if they are married to each other.