Setting Up a Trust for Your Spouse

Setting Up a Trust for Your Spouse

Setting Up a Trust for Your Spouse

Setting Up a Trust for Your Spouse

Assuming that you, as the loving husband, set up a trust toprovide your wife with income for life, does she want thepower to invade, or shall her power over the principal belimited to a general power appointment to take effect at herdeath? You must give her one or the other, or you will notactually give her the complete ownership of the property toqualify for the marital deduction. As it is, the power ofappointment is a legal exception to the terminable interest rulewhich otherwise would operate to deplete the marital deduction.

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If you want the trust for your wife to qualify for themarital deduction, you must give her a free and unfetteredpower of appointment over the corpus of the trust. You maygive her the right to invade the trust, but you must let hermake the ultimate disposition. If you set up a trust and giveher the power of appointment among three of your surviving children, this is not the type of trust which will qualify for the marital deduction and you will find that the otherwise tax-exempt one-half of the estate passing under the marital deduction will be taxable.

As far as the trust for the benefit for the children is concerned, the so-called "family trust," do you want your wife tohave the income for life, or do you prefer to have someincome go to the children when they reach their majority? If the children are to receive some income on reaching theirmajority, at what point do you want them to receive theprincipal and at what point do you want the trust dissolved?

Some of these questions must be answered on a personaland family basis, rather than on a tax basis, but the tax basisshould never be overlooked and should be a third personpresent at every two-way conference.

There are other questions which you must answer as well.What is to happen to your wife's interest in the family trust inthe event of her remarriage? If you give one-half of yourestate in trust to your wife with the absolute power of appointment on her death, the trust qualifies for the maritaldeduction. However, if you provide that the income from thetrust is to be passed to the children on your wife's remarriageor that on her remarriage she may appoint only among your children, you will have lost the marital deduction. The betterpractice will be to give your wife a completely unfettereddiscretion but to have a written understanding with her con cerning remarriage and to inform her of her rights by way of ante-nuptial agreement with her second husband.

In dealing with the power of invasion, you should permityour wife to make an invasion either for her own needs or forthe needs of her children. If you limit the invasion to her own needs, she may not be permitted to invade for the purpose of sending your son to medical school or of financing a much-needed operation for one of your children or grandchildren.The better practice will be to permit her to invade "for anypurpose deemed suitable by her," or for any purpose "deemedsuitable by the trustees, considering the wishes of my beloved wife."

It will be useful for you to have tentative answers to thesequestions when you sit down to discuss your Will with yourlawyer, although your lawyer will take the initiative in raising the questions with you and guiding you to practical and sensible answers.

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