## Facts

- Jack Green and his wife, Norma Green, executed two substantially identical trusts on December 20, 1966, each benefiting one of their two granddaughters.
- Jack, as settlor, created a trust naming Norma as trustee and granddaughter Jennifer as beneficiary; Norma, as settlor, created a trust naming Jack as trustee and granddaughter Greer as beneficiary.
- Each trustee lacked any power to alter, amend, revoke, or terminate the trust.
- The trustee’s retained authority was limited to reinvestment decisions and discretion over the timing of distributions of income and corpus until the beneficiary reached age 21.
- Neither Jack nor Norma retained any direct or indirect economic benefit from trust principal or income.
- Jack died while serving as trustee of the trust created by Norma; his estate did not include either trust in his gross estate for federal estate-tax purposes.
- The IRS applied the reciprocal trust doctrine to “uncross” the arrangement and included the property of the trust Jack created in his gross estate under 26 U.S.C. §§ 2036(a)(2) and 2038(a)(1).

## Issues

1. Whether the reciprocal trust doctrine applies to these interrelated trusts under the two-part test of United States v. Grace.
2. If the doctrine applies, whether the “uncrossed” trust property is includible in Jack Green’s gross estate under 26 U.S.C. §§ 2036(a)(2) and 2038(a)(1) based on retained powers affecting beneficial enjoyment.

## Decision

- The Sixth Circuit affirmed the district court’s judgment for the Estate.
- The court accepted that the trusts were interrelated (executed the same day, substantially identical, and part of a single plan to benefit the granddaughters).
- The court held the reciprocal trust doctrine did not apply because the arrangement did not leave the settlors in approximately the same economic position as if each had created a trust naming himself or herself as life beneficiary.
- The limited fiduciary powers to reinvest and time distributions for third-party beneficiaries did not constitute retained enjoyment or control requiring inclusion under §§ 2036(a)(2) or 2038(a)(1).
- Because the doctrine was inapplicable, the trust created by Jack was not includible in his gross estate under the cited provisions.

## Legal Principles

- The reciprocal trust doctrine applies only if (1) the trusts are interrelated and (2) the arrangement, to the extent of mutual value, leaves the settlors in approximately the same economic position as if each had created a self-settled trust with a life interest.
- For estate-tax inclusion under 26 U.S.C. § 2036(a)(2), a decedent must retain a power to designate who will possess or enjoy the property or its income.
- For inclusion under 26 U.S.C. § 2038(a)(1), a decedent must retain a power to alter, amend, revoke, or terminate the transfer (or a comparable power affecting the transfer’s enjoyment).
- Trustee powers held in a fiduciary capacity that are limited to investment decisions and timing of distributions for third-party beneficiaries, with no possibility of personal economic benefit, generally do not satisfy the “economic position” requirement for reciprocal trust treatment and do not establish retained enjoyment or control for §§ 2036 or 2038.

## Conclusion

The Sixth Circuit declined to apply the reciprocal trust doctrine to substantially identical, contemporaneously executed grandchild trusts where each settlor retained only limited fiduciary powers and no economic benefit, and it therefore held the trust property not includible in the decedent’s gross estate under §§ 2036(a)(2) or 2038(a)(1).


Estate of Green v. United States, 68 F.3d 151 (6th Cir. 1995)