Trustee Powers That Can Cause Tax ProblemsTrustee Powers That Can Cause Tax Problems

Marguerite Munson Lentz

Choosing a trustee is one of the most important decisions that clients make for their estate plans. Some trust powers may be critical for tax planning — but giving those powers to the wrong person as trustee can actually undermine tax goals. “Tax-sensitive” powers are ones that change the estate, gift or income tax consequences depending upon who holds them.¹ Failure to pay attention to these powers can result in very unhappy clients or heirs who end up paying the additional taxes.

So let's examine the dos and don'ts of tax-sensitive powers when dealing with both revocable and irrevocable trusts.

Revocable Trusts

Question: Can a spouse be named, after the grantor's death, as the sole or co-trustee of a revocable trust...