Typical Situation: What kind of trust would work best (legally and tax wise)?

We would like to setup a trust where if one of us passes, half of our joint property would only go to the surviving spouse, while the other half would be split between all current and future kids of ours AT THE time of death.

If the kids are too young at time of death parent's, the kids would get the property if they reach e.g. 25 yrs old, but we also want the surviving spouse to be able to sell those properties (but set aside the net proceeds of the sale for the kids so when they reach 25yrs old they can get that sum or value, plus any earning on it, but at least the proceeds.)

Our net assets with life insurance, RE could be around $1M now, and who knows what the future holds re: fair values, wealth, and exemptions etc.

What kind of trust (joint, AB) do you recommend for this type of situation and why? Or What would be the best solution (tax and legal) to achieve what we would like to achieve?

It seems like if a property is owned jointly, it goes to the surviving spouse first, no matter if someone or both parents choose to create a joint or AB trust and wish their half to go to the kids AT time of death.... so there is no trust vehicle that will give your half of the jointly owned property to your kids at time of your death, even if this is both parent’s wish????

With joint trust, if the surviving spouse gets remarried, and dies after, how would the property go to the kids and not to the new wife of the deceased?

If we pick the AB trust which involves a lot of accounting, recordkeeping, tax filings upon the death of the first spouse, how could the surviving spouse sell the property (his half and the kid’s future half) and invest the $ received (half form the deceased wife) in something for the benefit of the children?

We could keep giving away our property to the kids, but I am not sure if it triggers any additional cost or tax event (increase property tax, change title, deed etc.).

Can you advise what are the options to achieve the goal described in the first paragraph above?

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Apr 02, 2012
Put Assets in QTIP Trust
by: Mo Johnson

Hi, of course I can't give you specific legal advice -- however, your situation seems perfect for a QTIP Trust. Essentially, that could be simply a living trust that has QTIP provisions. Be sure to fund the trust.

There are many different ways that the trust can work. The QTIP article above talks about the second spouse continuing to access income from all property -- but there are many other ways it can be done, including simply transferring some assets to the children of the first spouse to die.

If you want to learn more about the ins and outs of how property is valued and/or transferred at the time of the first spouse' death -- the rules depend on your state law. I'd recommend Henry Abts excellent book, especially chapter 14A (separate property states) and 14B (community property states). Here's a link to that book:

How To Settle Your Living Trust : How You Can Settle a Living Trust Swiftly, Easily, and Safely

Of course, you can't go wrong talking to a local living trust attorney.

Good luck!

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