What is a “Stale” Trust?

Many trusts created by married couples provide for the splitting of the trust into 2 subtrusts after the death of the first spouse. These types of trusts go by a variety of names: A/B trust, marital exemption trust, by pass trust, or disclaimer trusts. In these types of trusts, the joint assets must be allocated between the trust for the decedent and a trust for the surviving spouse or in the case of a disclaimer trust, a disclaimer must take place within nine months of the date of death.

Often the surviving spouse does not administer the trust after the death of his or her spouse for a variety of reasons. The surviving spouse may not want to go to the expense of paying attorney’s fees or it may be that the surviving spouse is not aware of the duty to do something after the first death. Whatever the reason, the delay in administering the trust can cause problems especially if the delay has been substantial.

Such a trust is called a “stale” trust. One of the problems that can occur with a “stale” trust is tax consequences. Often trusts that split into two trusts upon the death of the first spouse are created in order to take advantage of the federal tax exemption for estate taxes. Assets that are appreciating are usually allocated to the trust for the deceased spouse. If the trust is not split, there may be an important tax saving lost. Another problem with a “stale” trust may be the remainder beneficiaries instituting litigation because of the lack of funding of the decedent’s Trust at the time of the first death.

Sometimes these problems come to light when the surviving spouse amends his or her trust after the death of the other spouse. If you are in the position of being the surviving spouse with a trust that needed administration after the death of your husband or wife, you should consult with an experienced estate planning lawyer to see what can be done to put the trust back on track. Delaying getting advice only complicates and confuses the issues since with the passage of time, assets get sold and new ones acquired.

The experienced estate planning lawyers at Scott C. Soady, A Professional Corporation can assist you in determining if you have a trust that should have been split into subtrusts after the death of your spouse and what should be done about it. Initial consultations are always complimentary.