Section 4.11 Form—Common Marital Deduction Trust

• Library: Estate Planning 2013 Forms

An alternative to creating a separate trust for each spouse is to create a common marital deduction trust into which a married couple would transfer all of their assets. The following is an example of a common marital deduction trust that contains a pecuniary marital deduction formula, creating a Trust A for the benefit of the spouse and a Trust B for the benefit of the spouse and descendants.

John Doe and Jane Doe

Revocable Trust

Parties to Trust Agreement

This Agreement is made __________, 20___, between John Doe and Jane Doe of Kansas City, Missouri, as Grantors under this Trust Agreement, and John Doe and Jane Doe, as the initial Trustees. They are referred to in this Agreement either as “Grantors” or collectively as “Trustee” depending on the context.

Introduction

It is the intent of Grantors in creating this trust that, while they are both living, this trust shall be administered in two separate shares of one trust for the benefit of each Grantor. As to any property contributed by either Grantor that is not tenancy by the entirety property under Missouri law, regardless of which Grantor initially acquired any property that is placed in this trust or who furnished any or all of the consideration for the property, that Grantor shall, by contribution of the property to this trust, make an immediate gift of an interest in the property to the other of the Grantors to the extent necessary so that at all times all trust property shall be beneficially owned in equal shares by each Grantor in his or her separate share of this one trust. As to any property that is contributed by Grantors and is tenancy by the entirety property under Missouri law, such property shall be held equally in two separates shares of one trust for the benefit of each of the Grantors. In creating this trust, it is further the intent of Grantors that, upon the death of the first of them, the deceased Grantor’s beneficial interest in the trust shall be exactly equal to that of the survivor. Grantors, therefore, are transferring to the initial Trustee the property listed in the attached schedule. The Trustee shall hold the property and any other property that the Trustee may acquire from either of the Grantors or from other people, all of which is collectively referred to as the “trust,” in trust, upon the following terms.

Article I

Distribution of Trust Property

A. Administration andDistribution During Life of Both Grantors

While both Grantors are living, the Trustee shall hold and administer this trust in two separate shares, one share for the benefit of each of the Grantors. The Trustee shall pay to either Grantor, from that Grantor’s separate share in trust, sums from the net income and property or sums of money from the principal of such Grantor’s separate trust as such Grantor may request without limitation as to the amounts of or the reasons for the withdrawals. The Trustee shall accumulate the net income of the trust not so requested by either Grantor and shall add it to the principal of such Grantor’s separate share in trust at such times as the Trustee shall determine. Notwithstanding any contrary provisions, however, when a distribution is made from one Grantor’s separate share in trust, an equal distribution to the other Grantor shall be made from the other Grantor’s separate share in trust so that at all times the separate shares in trust for each Grantor remain equal. Unless specifically directed otherwise by the Grantors or either of them, any distributions made under this paragraph shall, to the extent possible, be made from trust property other than property originally transferred to the trust by the Grantors as tenants by the entirety and the proceeds thereof, the income thereon, and any property into which such property, proceeds, or income may be converted. In addition, while both Grantors are living, the rights of the beneficiaries are subject to the control of, and the duties of the Trustee are owed exclusively to, the Grantors.

B. Division of Property Upon Death of First Grantor

Upon the death of the first Grantor, the Trustee shall distribute the deceased Grantor’s interest in any household furniture, furnishings, personal effects, vehicles, and any other tangible personal property of the trust to Trust A (referred to below), and the Trustee shall divide the rest of the principal and any undistributed net income of the deceased Grantor’s one‑half share in the trust (together with any other property to which the Trustee may be entitled by reason of the deceased Grantor’s death and less any taxes, debts, expenses, or other obligations payable by the Trustee as the result of the deceased Grantor’s death) into two shares determined as follows:

1. Trust A

The first share shall be in an amount equal to all property to be divided into shares reduced by the lesser of:

· the maximum amount that will avoid any federal estate tax being due in the deceased Grantor’s estate; or

· the maximum amount that will avoidany state death tax being due in the deceased Grantor’s estate.

In determining this amount, any property of this share disclaimed by the surviving Grantor shall be disregarded. Any property so disclaimed by the surviving Grantor shall become a part of Trust B. If applicable, final federal estate tax values shall be used in determining the amount of this share. Assets shall be allocated to this share using the basis of the assets as determined for federal income tax purposes, provided that this share shall be satisfied with property fairly representative of appreciation or depreciation in value of all property available for allocation to this share, this appreciation or depreciation to be determined from the federal income tax value of the assets. This share shall not be reduced by any death taxes. There shall be allocated to each share its proportionate part of all income from the date of death of the first Grantor to die, including income collected by the Personal Representative of that Grantor’s estate and transferred to the Trustee. This share shall be added to the trust property of the surviving Grantor, and the property of the surviving Grantor as augmented by this share shall thereafter be known as “Trust A.”

2. Trust B

The second share, called “Trust B,” shall consist of the property that is not included in Trust A. If the amount of the first share is determined under the preceding paragraph to be zero, then, other than the allocation of tangible personal property as heretofore provided, Trust A shall consist of the surviving Grantor’s one-half interest in the trust, and Trust B shall consist of the deceased Grantor’s one-half interest in the trust along with any property received by the trust because of the death of the deceased Grantor.

C. Distribution of Trust A

The Trustee shall distribute Trust A as follows:

1. Distribution During Life of Surviving Grantor

While the surviving Grantor is living, the Trustee:

· Shall pay to the surviving Grantor any net income of the trust that the surviving Grantor may from time to time request, without limitation as to the amounts of or the reasons for the withdrawals of income. The Trustee shall accumulate the net income of the trust not so requested by the surviving Grantor and add it to the principal of the trust at such times as the Trustee shall determine.

· Shall pay to the surviving Grantor from the principal of Trust A property or sums of money that the surviving Grantor from time to time requests in writing, without limitation as to the amounts of or the reasons for the withdrawal.

2. Distribution Upon Death of Surviving Grantor

Upon the death of the surviving Grantor:

· The Trustee shall distribute the principal and undistributed net income of Trust A to or in trust for those persons or corporations or the estate of the surviving Grantor in those amounts or proportions designated by specific reference to this power in the surviving Grantor’s last Will.

· If this power of appointment is not effectively or fully exercised by the surviving Grantor, out of that part or all of the principal and undistributed net income of Trust A not so appointed by the surviving Grantor, the Trustee shall distribute those items of tangible personal property of the trust that are described in the most recent list signed by the surviving Grantor and dated after the date of this Trust Agreement to Grantor’s survivors named in the list. To the extent that the list does not dispose of all of the tangible personal property that is an asset of the trust at the date of the Grantor’s death (or if the list is not found within thirty days after the Grantor’s death), the Trustee shall distribute the property to Grantors’ children who survive the Grantor as equally as is practical, having regard for each child’s preferences. But if the Trustee determines that distributing any of the property to Grantors’ children is undesirable or impractical, the Trustee shall sell it and add the proceeds to the rest of the trust. The rest of the principal and undistributed net income shall be added to and disposed of as a part of Trust B under all the terms that pertain to it, provided, however, that the Trustee, when the amounts needed are certified by the Personal Representative of the estate of the surviving Grantor (or when the amounts are determined by the Trustee) shall be authorized, in the discretion of the Trustee, to pay or distribute to the Personal Representative (or to pay or distribute directly) amounts needed to pay all debts and costs of administration of the surviving Grantor’s estate and all nonresiduary bequests contained in the surviving Grantor’s Will and, in addition, if legally obligated to do so, shall pay the death taxes due as a result of the inclusion of the value of the principal of Trust A in the surviving Grantor’s gross estate as well as any penalties or interest attributable to the additional taxes. All payments made by the Trustee in accordance with this paragraph shall be made...