In a pro rata fractional formula, which trust is frozen during administration prior to funding?

• A. The marital trust
• B. The residual trust
• C. Neither, they must share the appreciation/depreciation.
• D. Both the marital and residual trusts.

Answer: (C)

The idea being tested is how a pro rata fractional formula handles gains and losses when a single estate funds more than one trust. When you fund a marital trust and a residual trust from the same estate, the value that goes into each trust is determined in proportion to how much each trust receives. Any appreciation or depreciation that happens after death isn’t locked to one trust; it’s shared between the trusts in that same pro rata ratio.

For example, if the marital trust ends up with two-thirds of the funding and the residual trust with one-third, any post-death increase or decrease in value is allocated two-thirds to the marital trust and one-third to the residual trust. This means neither trust is permanently “frozen” to the whole asset before funding; both participate in the subsequent changes in value according to their funding shares.