RPM Trust
An RPM trust is a
remainder purchase marital trust. The object of this trust
is to make a transfer to a spouse that qualifies for the
marital deduction under the gift tax but which will not be
in the spouse's taxable estate when the spouse dies.
Ordinarily a transfer to a spouse that qualifies for the
gift tax marital deduction will be an outright transfer. It
will belong outright to the spouse and be in the spouse's
taxable estate. If the transfer can be kept out of the
spouse's estate then you can transfer more to the kids tax
free then the tax free amount, if your spouse survives
you.
The gift tax
marital deduction ordinarily is not available for life
interests - a gift to the spouse for life and after the
spouse's death to someone else. There are exceptions for
certain devices which have the consequence of putting the
assets in the spouse's taxable estate when he or she dies,
such as a power of appointment in his or her death. However,
the disallowance of the marital deduction does not occur
with a life interest if the takers of the remainder interest
pay full value for it. The terms of the RPM trust are: to
the spouse for life, remainder to the kids. This is the same
scheme as most other trusts. However, the kids do not
receive a gift interest. They pay the grantor for it. They
pay the full present value of this remainder interest. Note
that this puts property back in the grantor's estate. The
effect of this device is to transfer any appreciation in
value to the children free of estate tax.
The kids get the
money to purchase from a prior gift and from installment
notes.
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