Dude, Where's My Income? Examining Property Conversion Clauses in Marital Trusts

The "Marital Deduction" matters. As an instrument of public policy, it is a powerful statement by Congress that spouses are a single taxable unit. As a planning tool it is a flexible technique, subject to no dollar limitation, with few technical restrictions, and with relatively simple practical application. For these reasons and others, it is widely used both during life and at death. In fact, there is no single deduction that is more significant. It is, simply, the foundation of an estate plan for the quintessential married couple.

But there is a peculiar, technical, and inflexible requirement of the Marital Deduction that, though extraordinarily important, is often overlooked by planners who largely rely on form documents to provide the necessary "boilerplate" provisions required for modern trusts: spousal conversion of unproductive property.

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