Can a GRUT provide income for a surviving spouse after the grantor’s death?

A Grantor Retained Unitrust (GRUT) is a powerful estate planning tool, and yes, it absolutely can be structured to provide income for a surviving spouse after the grantor’s death, but it’s a bit more nuanced than a simple bequest.

How Does a GRUT Work for Spousal Income?

A GRUT involves transferring assets into an irrevocable trust while retaining the income interest for a specified term or for life. The grantor receives a fixed unitrust payment – a percentage of the trust’s assets valued annually – during their lifetime. The key is what happens after the grantor passes. If structured correctly, the remainder interest – what’s left in the trust after the income term ends – can be designed to provide ongoing income to the surviving spouse. This is typically achieved by naming the spouse as the beneficiary of the remainder interest, receiving payments from the trust principal and any remaining income generated. Approximately 60% of estate plans utilize some form of trust, highlighting their prevalence in wealth management. It’s crucial to understand that the annual unitrust payment to the grantor is taxable income, so careful consideration must be given to the tax implications.

What Happens to Assets During Marriage & After Death?

In California, all assets acquired *during* marriage are considered community property, owned equally by both spouses. This is extremely important because it impacts how a GRUT is funded. Assets contributed to a GRUT from community property need careful consideration, as they may still be subject to community property laws. However, assets owned separately *before* the marriage, or received as gifts or inheritance during marriage, remain separate property. These separate property assets are often ideal for funding a GRUT. After the grantor’s death, the surviving spouse inherits the remainder interest, potentially avoiding probate if the GRUT is properly funded with assets exceeding $184,500 (the threshold for formal probate in California). The “double step-up” in basis for community property is also a significant tax benefit. This means that when both spouses pass away, the basis of the inherited assets is stepped up to the fair market value at the time of the *second* death, reducing potential capital gains taxes.

What if There’s a Dispute Over the Trust?

I remember a client, David, who created a GRUT, intending it to provide for his wife, Susan, after his passing. He didn’t clearly communicate the intricacies of the trust to her, and after his death, Susan was initially confused and frustrated. She felt like she didn’t have control and feared the trust wouldn’t provide sufficient income. She even considered contesting the trust, believing it wasn’t what David intended. Luckily, a clear review of the trust documents and a thorough explanation from an attorney calmed her fears. It was a reminder that transparency and clear communication are vital when implementing any estate plan. No-contest clauses, while present in some trusts and wills, are narrowly enforced in California and only apply if a beneficiary files a contest *without* probable cause.

How Can I Ensure My Spouse is Properly Protected?

Another client, Maria, came to me after her husband, Frank, passed away without a comprehensive estate plan. She was left navigating a complex probate process and dealing with significant legal fees. She was devastated, not only by the loss of her husband but also by the financial and emotional burden of settling his estate. She felt completely unprepared. I helped her create a trust-based plan that specifically designated income for her for life, offering financial security and peace of mind. This illustrates the importance of proactive estate planning and the value of seeking professional guidance. As a trustee, it is vital to adhere to the California Prudent Investor Act when managing trust investments, ensuring that assets are managed responsibly and in the best interest of the beneficiary.

To discuss your estate planning needs and how a GRUT might benefit your family, please contact Steven F. Bliss ESQ. at

or call (951) 582-3800. We’re here to help you create a secure future for your loved ones.