“With the trust departments of many financial institutions disappearing, and those that remain declining to manage trusts with “non-traditional” assets or even life insurance policies, families with complex legacies are looking for fiduciary alternatives that can provide the requisite services for the long haul.”
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“With low interest rates and uncertainty persisting, estate freeze techniques, like installment sales to grantor trusts (ISGTs), continue to play a key role in legacy planning.”
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“Zero-gift planning techniques, like zeroed-out grantor retained annuity trusts (GRATs), have taken on renewed importance in legacy planning as a way to remove assets from the estate and preserve the federal unified credit for later income tax (basis) planning, if needed.”
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“As budgets are squeezed, more states are challenging state residency changes for income tax purposes. Each state has its own unique set of rules for establishing or terminating income tax residency. Some states base tax residency on an objective test that counts the number of days the individual is present in the state, while others impose a subjective test that looks at the individual’s state connections.”
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“Most states impose a fiduciary duty on trustees of irrevocable trusts to inform and report to the beneficiaries regarding the trust accounts and administration. Depending on the trust agreement and the applicable state law, this duty may range from mandating that the trustee notify beneficiaries of a trust’s existence and provide annual reports, to leaving all such disclosure and reporting activities in the trustee’s sole discretion. These variations in state laws and increasingly complex trust agreements can present unique compliance challenges and potential liability exposure, particularly for non-professional trustees who lack the necessary experience and administrative infrastructure.”
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“Acquiring life insurance on a surviving spouse inside a CST addresses multiple tax issues – it limits income tax associated with the CST assets and efficiently uses the estate and GST tax exemptions. This approach also eliminates the need for annual gifts to an ILIT (and corresponding Crummey withdrawal notices) and more complex funding programs, like split dollar arrangements.”
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“The potential for major tax reform is here, and change always breeds opportunity. Inertia is not a plan. Facing the possibility of major tax changes, clients and their advisors must think differently about approaching tax and legacy planning. Finding advisors who are adept at strategic planning in an uncertain environment will be important – cookie cutter approaches, while appearing inexpensive, likely will be costly. While a Republican President and a Republican-controlled Congress increases the likelihood of major tax reform, there is a lot of uncertainty as to the final outcome, including whether there will be estate tax repeal, and if so, whether it will be replaced with another tax (like a capital gains tax at death), and whether proposed regulations under Internal Revenue Code §2704, dealing with valuation discounts for family-controlled entities, will be withdrawn.”
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“Apportioning estate taxes among various bequests is complex and requires an understanding of the individual’s wishes and assets and knowledge of the Federal reimbursement and applicable state apportionment statutes. Well thought out and carefully drafted tax apportionment provisions will facilitate carrying out the client’s intent and minimize controversy regarding the payment of taxes following the client’s death.”
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“Families often select their children to serve as trustees both to minimize trust expenses and to empower their children. The cost of making that choice, however, may be higher than clients expect, including a loss of creditor protection if a beneficiary-trustee has too much trust access or control.”
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“Blended families, mobile beneficiaries, and new approaches to trusteeships require a flexible and highly customizable approach to irrevocable life insurance trusts (“ILITs”), one of the most common legacy planning tools.”
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