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Issues Facing Trustees of Personal Revival Trusts

Eric Engelhardt, J.D.

page 4 of 5

Investing the Trust Assets
The second issue facing trustees is investment decisions. In this area, personal revival trusts will be closely analogous to traditional Engelhardt dynasty trusts. The long-term horizon means that assets should be invested in asset classes that historically perform well over long periods of time. The income beneficiary will be looking to produce as much income as possible, so they might invest it all in bonds in order to get the most income from it. Yet, what happens if after 50 years, the grantor comes back and points out that there has been no growth on the trust whatsoever? The trustee will have some explaining to do because he has completely disregarded them as a remainderman[1].

One possible way of getting around this issue is a unitrust election. Many states, such as Delaware, New York and Florida, allow trustees to distribute a flat percentage of the total return of a trust in lieu of income, or the grantor could deem that only three percent of the total trust be distributed instead of using a net income model.

Trust Taxation
If the trust has to pay out all of its income, it is a simple trust. If it is retained in the trust, it is called a complex trust and will be taxed at trust rates, which accelerate very quickly. Presently, anything over $9,300 is taxed in the highest federal bracket.

Trustees might want to invest in assets that produce more favorable taxation such as long-term capital gains, which are now at 15 percent, as opposed to ordinary income that might quickly jump to 35 percent. In addition, the state in which the trust is established plays an important role because there may be no income or capital gains tax in that state.

Redistributing Assets to the Revived Grantor
The final and most important issue facing trustees revolves around distributing assets back to the grantor. How will the trustee get the assets back to the grantor when he is revived? How will the trustee define “legally alive”? Unfortunately, there is no Common Law or statutory provision that defines the moment when somebody who was once deceased is legally alive again.

One approach is to say that “legally alive” is the converse of what states define as legally dead. In 43 states, the Uniform Determination of Death Act states that a person is dead if there is irreversible cessation of circulatory and respiratory functions or irreversible cessation of all functions of the entire brain. Consider a person who is revived; wasn’t the cessation actually reversible? If the cessation was reversible, wasn’t the person actually alive the entire time? Perhaps this is going too far, but it is a valid argument to say that if a person is not dead, he is alive. The only problem with this is that it does not cover situations such as a preservation of the consciousness that may come back in a non-biological body. That is something for the courts to decide.

Footnotes
1. Remainderman - The person who receives the principal remaining in a trust account after all other required payments have been made, such as those to the beneficiary and expenses.
http://dictionary.reference.com/search?q=remainderman May 3, 2006 3:28 P.M. EST (back to top)

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