Understanding Terminology in a Subtrust

The terms “survivor’s trust,” “disclaimer trust,” “credit trust,” and “marital trust” refer to subtrusts. The terms “bypass share” and “credit share” are used interchangeably. The term “marital share” refers to marital deduction gifts.

Survivor’s Trust

a.   The survivor’s trust is also sometimes called the “A trust.”

b.   “Survivor’s trust” is a common term for the trust that receives the surviving spouse’s interest in the trust estate, i.e.:

(1)   The surviving spouse’s half of the community property; and

(2)   The surviving spouse’s separate property.

c.   The survivor’s trust may include some of the deceased spouse’s assets. Assets may be specifically given to this trust, such as the personal residence or tangible personal property.

d.   The marital share may go into a separate marital trust or may be allocated to the survivor’s trust.

e.   The survivor’s share may be allocated to the marital trust, in which event there will be no survivor’s trust.

f.    The survivor’s trust remains revocable and amendable during the surviving spouse’s lifetime.

Disclaimer Trust

a.   A disclaimer trust is commonly used to provide bypass trust planning for small-to-medium-size estates.

b.   When a disclaimer trust is used, the revocable trust continues as a single-person revocable trust, known as the survivor’s trust, after the first death, except to the extent that the surviving spouse disclaims all or part of the deceased spouse’s interest.

c.   The disclaimed portion of the deceased spouse’s interest passes to an irrevocable trust to absorb all or part of the deceased spouse’s applicable exclusion amount.

d.   The surviving spouse must have no special power of appointment over the disclaimer trust and, if the surviving spouse is a trustee, no power to sprinkle income to other beneficiaries; otherwise, the disclaimer is not a “qualified disclaimer” under IRC §2518.

e.   A disclaimer trust can be a disclaimer bypass trust or a disclaimer marital trust, acting as a recipient of the disclaimed assets.

 

The credit trust:

a.   Is sometimes called the:

(1)   “B trust”

(2)   “Bypass trust” or

(3)   “Credit shelter trust.”

b.   May also be called:

(1)   The “exemption” or “exemption equivalent trust”

(2)   The “residuary trust” or “back trust” (if there is a pecuniary marital gift);

(3)   The “decedent’s trust” or

(4)   Various other names.

c.   Is the receptacle for the portion of the deceased spouse’s estate subject to estate tax (i.e., not qualified for the unlimited marital deduction) and is used to absorb the deceased spouse’s applicable exclusion amount.

Normally, this Credit or ‘B’ Trust is irrevocable.