MCLE SELF-STUDY ARTICLE: COMBINING TRUSTS TO REDUCE COMPLEXITY AND COSTS CAN BE HARDER THAN YOU THINK

Written by Andrew M. Katzenstein, Esq.* and Caroline Q. Robbins, Esq.^*

I. SYNOPSIS

Throughout the course of estate planning, clients often establish several trusts to accomplish estate planning advantages. For example, a client may establish an irrevocable life insurance trust to avoid estate tax on a life insurance policy; a grantor retained annuity trust to avoid tax on the appreciation of a specific asset; an intentionally defective grantor trust to which the client sells assets to transfer appreciation after the sale without incurring transfer taxes; a Crummey trust to gift the amount of the annual gift tax exclusion; a qualified personal residence trust to transfer appreciation on a residence in a tax effective manner; a spousal lifetime access trust to use up the unified credit before it is reduced by changes to the law; as well as trusts that are established by a client’s living trust when the client dies. Consequently, when the client dies, the client’s children and grandchildren learn that there may be multiple trusts that will be administered for their benefit.

Those children and grandchildren then realize that the cost and complexity of administering all those trusts can be enormous, and they inevitably inquire, "is there any way that the trusts can be combined so that life is simpler and administrative costs can be reduced?"