The Washington Report: – Wealth Transfer Edition
“Although high net worth clients under the $50 million threshold (HNW clients) may continue to implement planning, we’re seeing some hesitancy now, since they have less total gifting capacity than UHNW clients and greater concerns about giving away too much. Many HNW clients prioritize control and flexibility, often viewed by them as the ability to “undo” planning if circumstances or laws change.”
To read the full report, click here.
The Washington Report: – Wealth Transfer Edition
“All trust jurisdictions are not created equal. Choosing the jurisdiction with the best laws for the successful family is critical. In this modern, mobile world, the residence of the settlor, beneficiaries, and fiduciaries must be monitored and managed to avoid unintended consequences. Successful families, no matter their location, are beginning to think nationally when deciding where to establish their irrevocable trusts.”
To read the full report, click here.
The Washington Report: – Wealth Transfer Edition
“Abusive taxpayer transactions simply continue to raise the ire of the IRS. Commonly seen as a very conservative planning technique, the Internal Revenue Service (“IRS”) has recently taken extreme positions to challenge the use of grantor retained annuity trusts (“GRATs”). The IRS in a recent CCA takes the position that by undervaluing the assets transferred to a GRAT, the GRAT annuity interest is not a “qualified interest,” and therefore the entire transfer is a taxable gift. The IRS finds that the transferred interest can be undervalued to such an extent that it ceases to be a qualified interest under IRC § 2702. While the CCA is not precedent, it is a clear indication of how the IRS may deal with perceived abusive (valuation) transactions. A softer touch could have permitted use of the self-adjustment regulations to correct the transaction. Instead, the IRS uses a hammer to address, in our view, bad taxpayer behavior. To avoid costly disputes with the IRS, when funding a GRAT or any irrevocable trust with hard-to-value assets, obtain a qualified appraisal as of the date of the transfer.”
Click here to read the full report.
The Washington Report: – Wealth Transfer Edition
“With perceived threats to grantor trusts and increasing desire for flexibility, some practitioners gravitated to the “Family LLC” as an alternative to the conventional irrevocable life insurance trust (“ILIT”). The Family LLC provides a flexible vehicle for legacy planning that is here to stay. When life insurance is owned by a Family LLC, there is a tradeoff between the flexibility afforded by the Family LLC and the risk of estate tax inclusion to the parent/insured. And given the upcoming Corporate Transparency Act, the Family LLC may also have more complexity than previously thought.”
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“Rising interest rates, degrading asset valuations, and future legislative uncertainty coupled with high wealth transfer tax exemptions mean it’s a great time to revisit installment sales and similar transactions using grantor trusts.”
To read the full report, click here.
“The “step transaction” doctrine is alive and well. In the foot-race to beat potential tax law changes, families often miss the forest from the trees. The economic realities and entity formalities must be respected in the execution of a gift transaction….On November 10, 2021, the Tax Court rendered its decision in the case of Smaldino v. Commissioner, which involved a purported gift of LLC interests by Mr. Smaldino to his wife, followed by a purported gift of the same LLC interests, the very next day, from Mrs. Smaldino to a dynasty trust for the sole benefit of Mr. Smaldino’s children from a prior marriage. The Court found a series of ignored formalities, and that as a practical matter there was never a time when Mrs. Smaldino would have been able to effectively exercise any ownership rights with respect to the LLC interests “given” to her. The Court held that Mr. Smaldino never effectively transferred any LLC interest to Mrs. Smaldino, and consequently the dynasty trust received its entire LLC interest from Mr. Smaldino, creating a taxable event.”
To read the full report, click here.
2021 was a strange and challenging year in the estate and tax planning field, particularly life insurance….In the rush to address and mitigate potential consequences before they came into existence, practitioners, advisors, and clients all made decisions and took actions which, in retrospect, may not have been most advisable, were just plain mistakes, or failed to plan for the problems that these actions had potential to cause in the future, regardless of whether any of the concerning factors came to fruition. This article describes many of these “mistakes” which occurred due to rushed planning and may serve as a warning if we are (and we will be) faced with similar situations in the future.
To see the full report, click here.
What You Know: We Just Dodged the Defective Grantor Trust Bullet (or did we?)
What You May Not Know: It Is Still Important to Consider Hedging Re-Introduction of DGT Provisions
Please click here to see three planning/drafting scenarios to consider.
BREAKING NEWS from Finseca:
This morning, President Biden delayed his trip to see the Pope to meet with Congressional Democrats about moving forward on the Bipartisan Infrastructure bill (BIF) and on the reconciliation bill (Build Back Better plan, or BBB). In concert with that meeting, the White House released two documents (below) explaining the current state of play on the reconciliation package.
We view this as an offer, not a conclusion. These documents are focused on the big picture items. They leave out many important details. There are other items not covered here that key Democrats have said must be addressed in a final deal (i.e. SALT).
Here are the things we are watching closely:
Again, this is a very fluid situation. Please don’t hesitate to reach out with questions.
Armstrong Robinson
Chief Advocacy Officer, Finseca
“Contained in the House Ways & Means version of the reconciliation package was a significant change that would materially impact the usage of grantor trusts for estate planning. Since its release, Finseca has been advocating to preserve the tax treatment of life insurance death benefits and to protect the clients who utilize your services to meet the anticipated liquidity needs at death inclusive of the taxes to be paid. Your Finseca team has had several constructive conversations with policymakers in Congress about correcting the unintended impact on life insurance. As always, nothing is final until the President signs the bill, and we do expect changes. We anticipate an updated draft of the bill in a few weeks when it moves to the House Rules Committee. Notably, the crafters of the provision have changed effective date for Section 1062 that would disregard ownership for any sales/transfers/swaps between the grantor and the trust and subject them to a tax realization event.”
To see the current update, click here.