Joint Revocable Trust: Gift on Creation?

Not if the non-contributing spouse has the unilateral power to revoke:

If a trust may be terminated during the life of the donee spouse, under her exercise of a power of appointment or by distribution of the corpus to her, the interest transferred in trust satisfies the condition set forth in paragraph (a)(1) of this section (that the spouse be entitled to all the income) if she (i) is entitled to the income until the trust terminates, or (ii) has the right, exercisable in all events, to have the corpus distributed to her at any time during her life.

The moral of the story: pay attention to revocation rights in joint revocable trusts–such as community property trusts and tenancy by the entirety trusts–in order to avoid adverse gift tax consequences on funding. 

Source: Treas. Reg. § 25.2523(e)-1(f)(6)

Posted by Joel D. Roettger, JD, LLM, EPLS

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