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A REMAINDER PURCHASE MARITAL TRUST (RPM trust), is a special type of trust for the benefit of the grantor's spouse that is designed to qualify for the gift tax
marital deduction, but will not be subject to estate tax at the spouse's death. As a result, the trust property passes to the grantor's children completely free of gift and estate taxes. An RPM trust can be either a replacement for a GRIT or a GRAT without their inherent drawbacks. Both RPM Income Trusts and RPM Annuity Trusts provide benefits to the client.
The enactment of Chapter 14 in 1990 all but eliminated grantor retained income trusts (GRITS), leaving only grantor retained annuity trusts (GRATs) which have significant drawbacks such as the mortality risk and gift tax cost. The "remainder purchase marital trust," or "RPM trust," is our answer to Chapter 14. Such a trust can be either a replacement for a GRIT or eliminate the drawbacks associated with a GRAT. An RPM Trust involves a transfer to a trust for the grantor's spouse's benefit that is designed to qualify for the gift tax marital deduction, but that will not be subject to estate tax at the spouse's death. As a result, the trust property passes to the grantor's children completely free of gift and estate taxes.
Overview
The Terminable Interest Rule. Sec. 2523(a) generally provides that a transfer by gift of an interest in property to the donor's spouse qualifies for the gift tax marital deduction. However, Sec. 2523(b) provides that no marital deduction is allowed if, upon the occurrence of an event or on the lapse of time, the spouse's interest in the transferred property will end and, as a result, the property passes to another person `for less than an adequate and full consideration in money or money's worth" (emphasis added). This rule is often referred to as the "terminable interest rule."
There are two exceptions to the terminable interest rule, pursuant to which terminable interests will qualify for the gift tax marital deduction. These exceptions are contained in Secs. 2523(e) (a life estate with a general power of appointment trust, or "GPA marital trust") and 2523(f) (a qualified terminable interest property, or "QTIP", trust). If either of these exceptions...