We are in our second marriage.
Each of us has our own kids.
We already have a Trust.
Does it need revision due to the new 2001 Tax Law?

If you have a Trust using a formula which refers to the maximum tax free amount, it may need to be reviewed.

If you are married, in a second marriage with kids from a prior marriage, your Trust might need attention. The typical Trust for a married couple is an A-B-C Trust (more properly called a Survivor's Trust; Bypass Trust; and QTIP Trust) where the Survivor gets life use of some or all of the assets and the balance that remains at her death is divided among all of the children.

There are 3 typical scenarios for the disposition of assets in Trust at the death of the 1^st spouse (assume Husband dies 1^st) in a second marriage:

1. Wife #2 inherits everything (perhaps life use of everything in the Bypass and QTIP Trusts); H's kids must wait until Wife #2 dies when they inherit whatever is left. This Trust probably does not need to be changed due to the 2001 tax law change.



2. Alternatively, Wife #2 does not get everything when H dies; it ALL goes to H's kids. (Perhaps Wife #2 gets to use the house for 5 years or the rest of her life or until she remarries.) This Trust probably does not need to be changed due to the 2001 tax law change.



3. A common desire is to provide for both the kids and Wife #2. Under the old law, Dad might have desired to leave the kids "the most I can leave tax free. Wife #2 gets the rest in a QTIP ["C"] Trust (where Wife #2 gets the income for life, but when she dies the kids get whatever is left)."



• Under the old law, the kids would get $600,000, gradually increasing to $1,000,000 (in 2006), depending on when Dad dies. Wife #2 gets the rest.
  
  
• With the changes in the tax free amount, this might not work as originally planned and should be reviewed immediately.