Jon Gallo wrote:

- quote -

The trust assets consist of:

1) A rental house (no associated debt, was the couple's
principal residence several years ago).

2) A brokerage account with about 5 stocks and a dozen bonds
(little activity other than the occasional bond "rollover"
).

3) Two or three mutual funds (all in the same fund family).

All assets are "community property." And, by the way, the
existing trust document specifically states that any new
trusts formed under the agreement can be managed in common
at the trustee's discretion.

As the son points out, there is little chance that any of
these assets will be touched by the surviving spouse (she
will continue to receive pension benefits, ALL the income
from the trust assets, plus the proceeds of a life insurance
policy that is NOT included in the trust). The most likely
scenario is that the trust assets will remain intact until
eventually passed on to the couple's children.

I think managing this as a "commingled" trust is eminently
doable provided that we adhere to the simple rule of
allocating the assets on a pro rata basis (50% to the bypass
trust, 50% to the survivor's trust). Note, in this case, the
family would be foregoing the commonly followed strategy of
placing the assets most likely of future appreciation in the
bypass trust. But, on the other hand, there would NOT be a
profusion of new/additional accounts to manage, keep track
of, etc.

If, contrary to expectation, they get to a point where the
surviving spouse wants to tap into the survivor's portion,
then I would probably recommend a partitioning of the assets
(or at least some assets) at that time. For example, if the
spouse wanted to withdraw $100,000, I would recommend the
liquidation of $200,000 worth of assets, distributing half
to the spouse in the name of her survivor's trust and half
to an account in the name of the bypass trust. So far (knock
on wood) the family members appear to understand and agree
with this approach.

MTW

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"MTW" <mtwingcpa[at]yahoo.com> wrote:

- quote -

nature and composition of the assests. What are the assets
of the revocable trust? Can they be divided in this manner
and accounted for as you suggest?

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What does it cost to retitle the home? $150 in legal fees
and a $12 filing fee in this county (L.A.) The IRS could
make a case that the bypass trust was not funded if title
remains in the name of a trust which will become the
survivor's trust. Better to dot all the i's and cross all
the t's, or update your E&O insurance. It is a risk not
worth the meager savings in legal fees.

Linda Dorfmont

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Clients are an elderly couple. One of them is expected to
pass away shortly. The family is now considering how to fund
the bypass trust called for by the couple's living trust.

Since the couple's total estate in under 3 million
(approximately 2.5 million), one of the sons has asked if it
is really necessary to PHYSICALLY partition the assets at
time of death (half to the bypass trust, half to the
surviving spouse). Instead, he proposes that we simply
"account" for half the assets AS IF held by the bypass trust
(filing an appropriate 1041, etc.) without the need to
actually partition and re-title half the assets. (All
significant assets are currently titled in the name of the
living trust, which in turn calls for the creation of the
bypass trust. The spouse's share of the assets will remain
in the living trust.)

It seems to me that this IS a permissible option. Naturally,
one would have to be careful about the disposition of future
income or principal distributions. And, the surviving
spouse's tax return would have to make appropriate
adjustments to back out the income "duplicated" (if you
follow me) on the K-1. However, this family is fairly
organized and willing to live with some ground rules, so I
think we could pull this off without undue "accounting"
problems. It would save a lot of aggravation involved in
re-titling, opening new accounts, etc., etc.

Does anyone have experience with this approach? Any
significant pitfalls?

Thanks!

MTW

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