A Few Basics on Trust Planning for Spouses

Due to the events of the world over the last year, estate planning has been brought to the forefront of our minds. For many of us, it has moved up the list of priorities. When we are doing this kind of planning, there are many tools and options. One of those is to use trusts. I wanted to give a brief introduction into one of the problems that can arise in the use of trusts and how you can still plan for your estate.

The Reciprocal Trust Doctrine

Here is how it goes; a couple wants to create irrevocable trusts that benefit one another so that they can get their assets out of their estate but still maintain some amount of control over those assets indirectly. This kind of trust is called a SLAT, spousal lifetime access trust. Enter, the reciprocal trust doctrine, “RTD”. In response to this planning tactic, courts came up with RTD so that people could not do this. If the parties and their level of control over their assets are in essentially the same position after the trusts are funded, then they will not work to avoid exclusion of the gross estate for tax purposes.

So tax and estate planners and courts have gone back and forth on this adapting and the answer seems to be, the dual trusts must be different enough that they do not fall within the purview of the RTD. But how different must they be?

Here are some meaningful distinctions:

· Different trustees or ability to change the trustee;

· Withdrawal rights;

· Beneficiaries;

· Standards for distributions;

· Varying powers of appointment;

· Date in which the trusts were drafted; and

· Appraisals of assets or varying assets.

If you are thinking of doing some estate planning or have other questions about how these planning tools can work for you, please feel free to reach out to SEED. SEED also has created an excellent course to help you with your estate and business succession planning. SEED’s Generational Wealth Planning Course will provide you the knowledge and tools to create and work with a professional team to develop and understand your estate plan.

This article is an overview of legal considerations and does not cover every legal right or obligation, consideration, exception, or restriction. Every business decision should be well researched and discussed with a professional before being made.

To schedule a consultation with a SEED Law attorney, you can give us a call at (816)945–4249 or schedule your consultation here.