The Reciprocal Trust Doctrine

Legacy Planning, Once Removed

This podcast often discusses the elements of a trust, and how to grant access, control and flexibility to beneficiaries and trustees. But for tax and other purposes, the donor typically cannot retain those kinds of powers.

Interestingly, the donor often can set up a trust for the benefit of a spouse, and grant the spouse that kind of access, control and flexibility — Episode 11 discussed that concept, the spousal lifetime access trust or SLAT. A popular scenario involves each spouse setting up a SLAT to benefit the other spouse or others.

However, such transfers should be carefully structured to avoid the “reciprocal trust doctrine” and to ensure the transactions are respected. This episode discusses key principles of the reciprocal trust doctrine, lays out problems that can arise when setting up multiple trusts, and offers tips on the best way to create such trusts.