Where two trusts are created by separate donors under circumstances indicating reciprocity, the doctrine of the Lehman case requires that each donor be treated as the grantor of the trust over which he holds various incidents of ownership to the extent that the amounts in the two trusts are equal. For tax purposes the nominal grantors are transposed. The legal basis of this doctrine is the principle of trust law that one who furnishes the consideration for the creation of a trust is the settlor, although in form the trust was created by another. Thus if the settlor of trust A is given the power to invade the corpus of reciprocal trust B, the corpus of trust B is taxable to him under section 811(d) of the Internal Revenue Code. If he is given a life estate in a reciprocal trust, the trust property is included in his gross estate under section 811 (c).
Paul A. Anderson S.Ed.,
TAXATION-ESTATE AND GIFT TAXES-RECIPROCAL TRUSTS-MITIGATING FEATURES OF THE TECHNICAL CHANGES ACT OF 1949,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol48/iss5/8