Donald M. Thompson - Wills, Trusts, and Estate Planning


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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Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
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