Trusts and Estates
Ca. Trs. & Estates Quarterly Volume 9, Issue 1, Spring 2003
- Federal Securities Laws and Administration of the Grantor Retained Annuity Trust
- Modification and Update of Simplified Chart of Distribution Choices Following Death of Participant of Qualified Plan/Ira Under Final Regulations
- Naming the New Domestic Partner Rules
- Simplified Chart of Distribution Choices For Retirement Plans After Death of Plan Participant
- TAPPING THE TRUST TO FUND THE BATTLE: When Trustees Can Use Trust Funds To Litigate With Beneficiaries
- A Mechanism To Empty the Bypass Trust
A MECHANISM TO EMPTY THE BYPASS TRUST
By Margaret M. Hand, Esq.*
In the last issue of California Trusts and Estates Quarterly, William H. Soskin discussed two ways of terminating an irrevocable trust before the end of its term, by using the statutory methods of Probate Code §§ 15403, 15404 and 15409 or by using independent trustees1 If the trust has already become irrevocable and contains no mechanism for its early termination, it may be terminated only if one of the statutory methods provides relief. By contrast, a settlor who anticipates that early termination may be desirable may include in the trust provisions empowering an independent trustee to terminate the trust before the end of its term. This article discusses a third method of terminating an irrevocable trust: using powers of appointment.
I. THE PROBLEM
Consider these typical estate planning clients: a long-married couple who have children only of their one marriage. They want to leave all of their assets outright to the surviving spouse. On the first death, they do not want to lock half (or a large portion) of their wealth into an irrevocable trust, but they want the tax savings a bypass trust offers. Reluctantly, they execute a plan containing a bypass trust and on the death of the first spouse to die, the surviving spouse administers the bypass trust with even greater reluctance.