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Hampton Roads Estate Planning and Administration Law Blog

Friday, June 1, 2018

The Family Trust

By: Joseph T. “Chip” Buxton III, Certified Elder Law Attorney

I often devote this column to a discussion of the use of various types of trusts in estate planning. For example, we've discussed the joint revocable trust, where a couple will create a trust for their joint benefit during their lifetime, and at the first death the   trust will continue for the benefit of the surviving spouse, and then pass to the children or other beneficiaries. We've also talked about the legacy trust that is created for children after the parents' deaths to protect assets for the children during their lifetimes from the risk of divorce, debts, death taxes and disability.

In this column, I want to address the Family Trust. Where at a client’s death, their trust agreement will provide for the creation of a separate trust for the benefit of their spouse.  Historical this spousal trust was used to protect those assets from death taxes when the spouse has passed away. Today, with the new $11.2M federal estate tax exemption and no death tax in Virginia, our primary concern is to protect assets for the benefit of the surviving spouse. But more importantly, to ensure that those assets that belong to the decedent don't end up in the hands of a new spouse, or worse yet, the children of a new spouse. For that reason, most of the trusts that we write for married couples provides that at the death of the husband, or the wife, a trust will be created for the benefit of the survivor. Normally, the survivor serves as the trustee or manager of the trust, and the survivor is the beneficiary of the trust, but the survivor does not own the trust.  And therefore, it is protected for the benefit of the surviving spouse, but at the surviving spouse's death, will pass through the beneficiary of the original trust, usually, the children of the decedent, or the children of the couple. This way, we can ensure that should a wife die, and her husband re-marry, those assets do not inadvertently end up in the hands of the new wife. This trust is usually called a family trust, or the bypass trust. In tax terms, it was called the residuary trust. In any event, one of the primary preferences of a trust or trust for married couples, is to protect the assets of the decedent from the survivor's new spouse, the survivor's creditors, the survivor's death taxes in those states, such as Maryland, Pennsylvania and points north from state death taxes,  and under certain circumstances, if properly drawn, from the risk of disqualifying the surviving spouse from Medicaid or other long-term care benefits.

If you want to protect your assets for your spouse and,  at your spouse’s death, your children, consider using the Family Trust. In the meantime, we invite you to join us at our next estate planning seminar. For details on dates and locations the seminar nearest you, go to our website www.trustbuilders.com , or call our office 804-758-2244 or 757-877-2248.


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