Joint Revocable Trusts: New Flexibility in an Old Form
Probate and Property, July/August 2005, Volume 19, Number 4
By Beth A. Turner
Beth A. Turner is a member in the Charlotte, North Carolina, office of Moore & Van Allen PLLC.
Joint revocable trusts have been used historically as a mechanism for married persons to combine assets and control their disposition in a uniform manner. Estate planning attorneys in community property jurisdictions routinely have drafted joint revocable trusts to take advantage of the unique “double basis” benefit of community property on the death of the first spouse under Code § 1014(b)(6), which “steps up” the basis of the entire property, even though only one-half of the property is included in the predeceasing spouse’s estate for estate tax purposes. In noncommunity property jurisdictions, joint revocable trusts are being used increasingly to facilitate full use of the federal applicable exclusion amount regardless of which spouse is the first to die, particularly when the combined assets of the marital unit exceed the federal applicable exclusion amount but the individual assets of one spouse or both spouses do not meet or exceed the federal applicable exclusion amount. In TAM 9308002, the taxpayers in a common law jurisdiction attempted to get a full “step-up” in basis, similar to the treatment received in community property. The IRS denied the full “step-up” in basis based on Code § 1014(e). Similar joint revocable trusts in common law jurisdictions were discussed in two private letter rulings, PLR 200210051 and PLR 200101021. Although the IRS maintains that Code § 1014(e) prevents a full “step-up” in basis, the joint trust has favorable results for funding a credit-shelter trust on the death of the first spouse to die. At a recent Philadelphia Estate Planning Council meeting, Professor Jeffrey N. Pennell commented that the IRS will most likely write a revenue ruling in the next two years giving more guidance in the area.