Estate Planning Red Flag — You and your spouse have similar trusts

Description

Abstract: If a couple have similar irrevocable trusts for each other’s benefit, they could be subject to the “reciprocal trust” doctrine. It prohibits tax avoidance through trusts that 1) are interrelated, and 2) place both grantors in the same economic position as if they’d each created trusts naming themselves as life beneficiaries. This article explains that reciprocal trusts can be undone by the IRS; to avoid this, it’s important to vary factors related to each trust, such as the trust assets or terms, trustees, beneficiaries, or creation dates.