My last blog on gifting between spouses discussed an irrevocable trust that allows spouses to gift into irrevocable trusts while still maintaining control and allowing the assets to grow income tax free and pass estate and gift tax free to the beneficiaries. However, doing so is not as easy as it sounds.

The type of assets that may hold are cash, stocks, bonds, insurance, real property and business interests to name a few. The amount that may be transferred into the trusts though is the tricky part. The IRS has a rule, called the 5 and 5 rule, which states that when an annual exclusion gift is placed into an irrevocable trust for a spouse, a portion of the transfer will be included in the spouse’s estate if the transfer is greater than $5,000 or 5% of the value of the trust property.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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