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Family Trust Planning: Back to Basics

BY Ellen Schiffer Berkowitz
January 26, 2005

While many clients establish trusts and execute estate plans to eliminate or reduce the estate tax burden of their estates, there are non-tax benefits to creating trusts that are especially relevant to the clients of family lawyers. With the possibility of estate tax repeal on the horizon, the timing is right to focus on these non-tax benefits and remind ourselves and our clients of the valuable protections and control available through the use of trusts. Regardless of whether or not the federal estate tax is permanently repealed, the possibility of such repeal allows us to put aside many of the complexities of tax planning and focus on the key family issues and concerns that motivate clients to initiate trust planning.

Protection of Assets for Children

Individuals are motivated to create trusts to preserve assets for their children. In blended families, this simple goal becomes challenging and often emotional. When a spouse has children from a prior marriage, it is often appropriate for the spouse's death benefit to be held in a qualified terminable interest property trust (QTIP trust). (For more information about the use of trusts in divorce, see Stober L: Using Trusts in a Divorce. The Matrimonial Strategist, 22.3, April 2004, p. 1.) QTIP trusts are desirable because they allow one spouse to leave the other a lifetime income interest, but preserve the trust property for his or her children at the death of the surviving spouse. From an estate tax perspective, QTIP trusts are attractive because they qualify for the estate tax marital deduction. However, even without the marital deduction, a QTIP trust remains a useful tool. The trust protects the donor's assets from the surviving spouse and preserves them for the donor's children.

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