Mark Ashton, a partner in our Exton (Chester County, PA) office and former editor of our Pennsylvania Family Law Blog, wrote a very in depth and interesting post entitled "Qualified Personal Residence Trusts:  Are These Homes Subject to Claims in Equitable Distribution", on that blog.

Mark discusses how an estate planning tool called a Qualified Personal Residence Trust (QPRT) can be used to get appreciating residential property out of a person’s estate, and possibly, to avoid increase in value claims in equitable distribution in Pennsylvania.  The post does an excellent job explaining how this works.

In Pennsylvania, the passive increase in value on separate property (premarital, inherited, etc.) is subject to equitable distribution.  Mark talks about the possibility of using a QPRT to avoid these claims because the recipient never has a possessory interest in the trust assets.

These same concerns do not exist in New Jersey because passive appreciation on separate assets is not subject to equitable distribution as long as the asset is not put in joint names or otherwise commingled (active appreciation or increase in value due to the efforts of either or both of the spouses would be subject to equitable distribution). 

Other issues regarding the use of trusts and their impact on divorce have been previously reported on this blog.  In fact, the issue of trust income and whether a trust can be compelled to distribute income where the trust documents do not allow it, is before the New Jersey Supreme Court in Tannen v. Tannen.  Stay tuned for an update when that case is decided.

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