[WSBAPT] Questions about Funding Testamentary Disclaimer Bypass Trust

[Ryan Castle]

Hive,

Here is a fun law school exam question, although real:

I represent a personal representative surviving spouse. The decedent
spouse's will was drafted by a TX-based trust company. Both spouses resided
in WA at the time and the will states it is governed under WA law. The
couple moved from TX and wanted to maintain their prior TX financial
advisors, accountants, etc. The estate value implicates WA estate taxes but
not federal. The surviving spouse is primary beneficiary under the will,
but kids and grandkids also receive a specific bequest. This is a
blended family: surviving spouse is step-parent to children. Although,
there is no family drama. No creditors. All property is community property,
including real estate in US and UK and investment accounts.

The will contains a testamentary disclaimer "Family Trust" that is somewhat
vague in critical areas. Nothing states that the trust is revocable or
irrevocable. It reads somewhat like a QTIP trust. But I think I could also
interpret it as a bypass/credit shelter trust, all seemingly at the
election of the surviving spouse. The sole trust beneficiary is surviving
spouse, subject to HEMS distributions. Whatever is placed in trust is then
distributed according to decedent's will (hence the QTIP feeling, along
with blended family). No trustee is actually named, but could be
interpreted so that wife can appoint herself as trustee. There is a
provision for a trust protector, with no trust protector actually named but
allows a law firm or accountant hired by trustee to appoint the trust
protector.

My questions are:
1. Can I interpret this as a bypass/credit shelter/exemption trust, based
on the above vagueness? It would be nice to get that deceased spouse's
estate tax exemption to carry over. If this is a QTIP trust, why would it
be a disclaimer? I see no reason why survivor spouse would choose to be
subject to a QTIP trust.
2. If possible to be a bypass trust, is it wise to fund the bypass trust
with real estate? If so, should the US real estate only be retitled so that
surviving spouse remains 50% owner and trust (with survivor as trustee) is
50% owner? I see no reason to retitle the US property fully in trust name
because only half of value will receive the exemption carry over. As it
turns out, UK laws make it infeasible to include UK property in trust and
survivor wants to eventually liquidate in a year or so the UK property.
3. If US real estate should at least partially fund trust, could the
trustee liquidate years later as long as those funds remain in trust? Or
must trust protector liquidate?
4. Would it even be wise to fund bypass trust with US real estate and some
investment accounts, given the eventual loss of step up in basis upon
survivor's death? Are the above questions/issues moot? Survivor's financial
advisor and accountant are unsure, as there are so many moving targets in
whether the exemption carry over is worth the loss in step up in basis.

Any thoughts from the experienced hive are most welcome!! I thank you so
much in advance for reading this long post and providing thoughts! I
suspect that without reading the will and testamentary trust, it may be
hard to answer but any considerations are helpful.

-- 

Ryan Castle
Castle Law Firm, PLLC
Managing Attorney
T: 360-685-4260
F: 360-524-6838
1313 E. Maple St., Suite 213
Bellingham, WA 98225
https://ryancastlelawfirm.com/
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