Gift Planning Tips

Planning CRTs That Anticipate Marital Breakups

Richard is happily married to Elizabeth (his fourth wife) and he wants to set up a charitable remainder unitrust for the two of them with his separate property.  He expects to die married to Elizabeth, but he’s also a realist and asks privately what tax planning steps should be taken, “just in case” this marriage doesn’t last.  Richard knows something about taxes and realizes that, in case of divorce, his estate would owe federal estate taxes on Elizabeth’s survivor income interest (the marital deduction will have been lost).

Richard can establish a two-life unitrust that pays income first to himself and then to Elizabeth as survivor beneficiary, with Richard retaining in the trust instrument the right to revoke Elizabeth’s survivorship interest in his will (See Rev. Rul. 72-395, §7.07).  The transfer will be incomplete for gift tax purposes [Reg. §25.2511-2(c)].  If they should divorce, he can change his will and follow through with revocation at death.  The trust assets will be included in his gross estate but will qualify for the 100% estate tax charitable deduction.  If he dies married to Elizabeth, a 100% estate tax marital deduction should be available under Code §2056(b)(8).

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