Is there a gifting problem to the trustees?

Is there a gifting problem to the trustees?

In the case of a credit shelter trust where the 2 children of the surviving spouse are trustees and trustee #1 is a beneficiary under an ascertainable standard and trustee #2 is a beneficiary of discretionary principal (via trustee #1 voting), up to $50,000. per year. Both also have remainder interests. Is there a gifting problem here?


To the extent that the child who is trustee #1 can make a discreationary distribution to the other child, with no ascertainable standard limiting it, trustee #1 may be viewed as having given to trustee #2 as beneficiary assets that trustee #1 would otherwise have received on the termination of the trust. Since Trustee #1 would have received 1/2 of the assets if they were not distributed to Trustee #2 in Trustee #1s discreation, the distributions are in some sense a gift by Trustee #1 to Trustee #2. This could be an issue, but the entire trust document has to be reviewed, state law may have an impact. It might also warrant evaluating whether this right exceeds 5% of the trust principal. You should have the issue reviewed by an estate attorney in your state. If it is an issue, the terms of the trust (will that creates the trust) may provide a mechanism to address the issue. If not, and if it is believed worthwhile to address it, a court proceeding may be considered to reform the trust.

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