“Although the grantor of an irrevocable trust surrenders the right to revoke the trust and amend its terms, the restrictions are no longer as limiting as they once were. Alternatives to judicial modifications abound. From nonjudicial settlement agreements to new trends in decanting practices to innovations in modifications by consent, clients, trustees, and beneficiaries have many potential avenues for modifying an irrevocable trust to accomplish their legacy planning goals.”
“Critics had an immediate, and unsurprising, reaction, arguing that such taxes will push the wealthy to move to lower- or no-tax states. But is that true?
“While some wealthy people will move, proponents of these taxes argue, few will make good on the threat to move to Florida (with no state income tax) or, in New Jersey’s case, to Pennsylvania (where the state tax rate is one-third its neighbor’s rate). They argue that high earners and entrepreneurs have family and community ties that keep them from moving away.”
“As the 2020 presidential election approaches, uncertainty continues regarding the potential for tax legislation and changing market conditions, causing many to consider using current transfer tax exemptions with gifts before year-end. Individuals planning to transfer hard-to-value assets may wish to consider using a gift agreement with a defined value clause to shield against unwanted gift tax consequences.”
A very interesting article in the Business Section of the New York Times on Saturday, July 25th. On-Line in “Wealth Matters” the article is entitled, “Need Help With Your Estate Plan? Go With The Flow, Advisors Say.”
“As older adults face mortality during the pandemic, lawyers and wealth advisers are using color-coded documents and flowcharts to help them understand estate planning.” Andrew D. Hendry, vice chairman and general counsel for Colgate-Palmolive understood complicated legal documents. “But when it came to his estate plan, Mr. Hendry, like many others, was not terribly interested in digging through hundreds of pages of legal documents….He found comfort in what his wealth adviser had created: a series of color-coded documents that laid out exactly who got what, when and why….‘I’m a lawyer, and I understand estate planning documents have to be pretty heavy for the estate plan to work. But they’re really not useful to make a decision….’ ‘More people are looking to review their estate plans if something happens, but it’s hard to keep track of everything without a schedule like this,’ said John J. Voltaggio, a managing wealth adviser at Northern Trust who creates color-coded charts and simple spreadsheets for his clients, including Mr. Hendry. ‘We have that on one page. And then we can ask, ‘Should we update any of it?’”
While traditional estate plans may cost less, the value added with a comprehensive legacy management approach generally exceeds its marginally higher expense. Proactive management supported by a cooperative multi-disciplinary team helps families see what is on the horizon and efficiently navigate changes. Professional services rendered to implement and maintain a plan also eliminate many costly issues that routinely emerge when clients use a less sophisticated or “DIY” approach.
“In business succession planning, a §6166 deferral election may provide a powerful post-mortem planning tool to help minimize the initial strain on the estate and prevent a forced sale of the estate’s business interest. However, the election’s complex administrative and compliance requirements and the potential for payment acceleration make it an insufficient substitute for lifetime succession planning.”
“Heckerling presenters emphasized that flexibility in planning will remain key for families and advisors through the on-going roll-out of the TCJA and related guidance. Given the TCJA’s temporary nature, the possibility for future tax law changes depending on future election outcomes, and the many moving parts of planning for the “modern” family, successful plans will require active management and on-going monitoring of both federal and state tax and legal developments.”
“Relatively small shifts in applicable interest rates can have a disproportionate effect on the performance of rate-sensitive legacy planning. Appreciating the potential economic impact of the rate changes and how other factors, such as payment structure, term selection, and asset valuation, also can complement overall performance, may help clients and advisors to better customize the planning to achieve the intended goals.”
“The IRS has issued long awaited guidance concerning the proper reporting of cash and noncash charitable contributions…Failure to comply strictly with these requirements can result in a denial for some or all of a claimed deduction.”
“As creators (“grantors”) of irrevocable grantor trusts must pay the trusts’ annual income taxes without receiving any trust benefits, advisors typically suggest incorporating a tax reimbursement power that gives the trust flexibility to reimburse the grantor for the tax payment. Despite their prevalence, however, tax reimbursement powers must be crafted and used with care, not simply exercised as a matter of course.”