USING TRUSTS TO FUND SECURITY FOR SUPPORT

Q: My wife and I have agreed on almost everything -- support, alimony, property division, and custody. I have a problem with only one thing she wants: $200,000 in insurance on my life so that if I die, she will receive a lump sum to continue her alimony and child support. We have been married for more than 17 years, and I know that she and the kids will get Social Security if I die. To me, that's enough.

A: Social Security probably is not enough, and here's why: Your wife will not be able to draw on yours until she is age 62. If you die before she reaches age 62, she gets nothing until she attains that age. Your children will be entitled to get benefits if you die before they reach age 18, but they get no benefits at all after age 18. And if you die while they are being educated, there is no fund to pay for their college.

We don't know if $200,000 is the correct amount or not, but for everyone's protection, there should be security for your obligations. Today, creativity is fashioning divorce settlements is essential, and there are a number of ways in which you, your wife, and the children can benefit. Here is one of them:

Set up an irrevocable trust that will own and be the beneficiary of a life insurance policy with a face amount sufficient to cover your obligations. Either you -- or you and your wife in agreed percentages -- can gift the trust each year a sufficient amount to cover the insurance premium. When you die, the trust will receive the insurance proceeds and will follow the exact terms of your divorce decree or agreement. For example: if, at your death, your ex-wife is still entitled to alimony, the trust would pay her by the month, just as you would have if you were alive. You can even coordinate these payments with Social Security if you wish. If she remarries or dies, the trust stops paying her.

Similarly, if your children are still entitled to support or are being educated, the trust will pay their expenses just as you would had you been alive. When they finish school, just as your obligation to them would have terminated had you been alive, and the trust would likewise terminate.

After all expenses are paid, the trust would pay any remaining sums to secondary beneficiaries -- either your children, a new wife, or whomever you want. In this fashion, you need not worry about your ex-wife getting a windfall and benefiting from your death. But at the same time, since you and she still have a good relationship, it would be a shame to let an important, yet ancillary, matter ruin it.

SoloFact: When signed, the Taxpayer Relief Act of 1997 will contain a number of provisions that impact divorce and separation. Watch upcoming columns that discuss some of these important changes. And visit http://www.flyingsolo.com, "Divorce and Separation," "Divorce Tax" for more information.

Jan Collins Stucker is an award-winning writer and editor. Jan Warner is a matrimonial, elder, and tax attorney. Both are based in Columbia, South Carolina. Flying Solo is distributed nationally by Knight Ridder Tribune News Service and can be found on the Internet at http://www.flyingsolo.com.

Please send your questions to P.O.Box 11704, Columbia, S.C. 29211 or send your questions by email to janwarner@flyingsolo.com.