Divorce/estate planning trust.

• Author: Laffie, Lesli S.
• Position: From The IRS

In Letter Ruling 200413011, the IRS ruled favorably on a trust created to (1) deal with the possibility of divorce under a prenuptial agreement and (2) achieve estate planning goals.

Facts: B, who is married to M, intends to create a trust and transfer his separately owned property to it. He will retain the power to appoint all the trust's income or principal. The power will not apply to property distributed to beneficiaries under other trust provisions and will terminate on the first to occur of (1) B's death, (2) M's death, (3) B's written release of the power or (4) 20 years and two months. The power may not be exercised in favor of B, his creditors, his estate or his estate's creditors; thus, it is a special power of appointment.

During B's life, the trustee is to pay all of the trust's net income, at least annually, to or for M's benefit. After B's death, the net income is to be paid, at least quarter-annually, to or for M's benefit. The trustee is to distribute to or for M's benefit so much of the principal as the trustee, in its sole discretion, considers necessary or advisable for her health, support, maintenance and education. On M's written demand, unproductive property is to be made reasonably productive.

Under its terms, the trust will terminate if B and M so agree, and principal will be distributed to her.

B and M also intend to enter into a prenuptial agreement as to the disposition of their property on divorce. They agree that the property transferred to the trust will retain the characterization (as marital or separate property) it had before the transfer. The property transferred to the trust is to be divided on divorce as provided in the agreement. On a divorce, the court having jurisdiction is to determine the portion (if any) of trust property that B is to receive. The agreement is to be null and void on the first to occur of (1) B signing a...