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Avoiding A Reciprocal Trust Doctrine Situation

If you are looking to take advantage of this year's gift tax exclusion of up to $5 million by using a irrevocable trust, beware of the pitfalls of the reciprocal trust doctrine.

While it may be a very common strategy to create an irrevocable trust for your spouse's benefit, which can protect assets and lessen your estate tax burden, also be aware that the IRS will disregard reciprocal trusts if they end up leaving the grantors in the exact same economic situation.

For example, if spouse A and B both create separate irrevocable trusts and both fund them with the same $1 million dollars leaving each other as beneficiaries and the remainder to their children, they IRS would most likely treat the grantor as if they still owned those assets and there would be no tax savings.

Of course there are always some provisions that you may adopt into the trust terms, but you should consult with a professional estate litigation Attorney to make sure that you can avoid a reciprocal trust doctrine situation.

*This blog entry was not written by an Attorney and should not be constituted as professional legal advice.

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