Estate and Trust Forum
| Publication year | 1980 |
| Pages | 667 |
| Citation | Vol. 9 No. 5 Pg. 667 |
1980, May, Pg. 667. Estate and Trust Forum
A typical estate plan for an upper income bracket family will include a trust for the benefit of the family's minor children. A careful planner will see that the trust is irrevocable, that the grantor is not trustee and that none of the income can be distributed to the grantor or his spouse.(fn1) The trust will be funded with income-producing property, and as the idea is to use the income for the kids' education, the trustee will be instructed to use the income for the support, maintenance, education, health, comfort and welfare of the children. The arrangement works well until the grantor dies and the Internal Revenue Service ("IRS") succeeds in including in his gross estate the full date of death value of the trust corpus. How does this happen?
The culprit is a regulation issued under § 2036 of the Code that says that the "use, possession, right to income or other enjoyment of the transferred property" is retained by a decedent if the use, possession or right to income is to be applied to discharge a legal obligation of his, including the support of a dependent.(fn2) All states impose a legal obligation upon a parent to provide support for his minor children and the IRS has been very successful in including in the gross estate trusts that provide for the support of the grantor's minor children.(fn3)
In order to include the trust assets, however, the decedent must have been subject to a legal duty to support the beneficiaries. The support obligation of parents is defined by state law. Since state laws vary considerably on this issue, the question of which law governs can be extremely important and the question is far from settled. The United States Supreme Court has recognized the law of the parent's domicile as controlling,(fn4) but courts are likely to apply their own law if the child resides within their borders. Colorado statutes provide that the crime of non-support is committed in the county where the child is at the time of the complaint.(fn5) If parent and child are living together, the estate planner's task is much easier.
Assuming that the controlling state law can be identified, the crucial task is to identify the actual extent of the legal obligation. The law concerning child support has developed basically from two areas that are far removed from taxes. One is the law concerning child abuse and neglect, the termination of parental rights. The other is the law concerning divorce and the award of child support to the custodial parent. The principles developed do not always translate into definitive guides of what a parent is obligated to
provide his children in a normal continuing family situation.
At common law, the duty to support minor children was a moral duty. In most states today, the duty is also legal, imposed by statute and by case law. In Colorado, it is a Class 5 felony to fail to provide reasonable support for one's minor children.(fn6) The obligation has also been recognized in case law from the early days of the State.(fn7) Traditionally, the obligation was the father's. In fact, at common law, the mother had no duty. In most...
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