“Estate planning is not just about taxes — it is also about family.”
2009 – What Every Individual Acting as Trustee Should Know About the New Uniform Prudent Investment and Principal Income Acts
There are two UPIAs, which is confusing: the Uniform Principal and Income Act and the Uniform Prudent Investor Act. I call the former the UP&IA, and the latter UPIA, but most people call both UPIA. They have recently been adopted in one form or another in most states, and anyone who is establishing or administering a trust simply has to know something about them both. They are very important. This article give a good overview.
Long, long ago (when I began practicing law), trusts were taxed at rates more favorable than that of individuals. It was all the rage to set up trusts to save on income taxes. Following a common pattern, legislation was enacted that ignored certain trusts (called "grantor trusts') for income tax purposes. The IRS used its regulatory authority to keep trusts from being taxed separately by liberally interpreting the statute. Then things changed. Now trusts are taxed at higher rates than individuals, at least at lower income levels. So, creative tax practitioners began to deliberately make trusts subject to the grantor trust rules. Further, it was discovered that a gift to an irrevocable trust could be made complete for gift tax purposes, and yet still be subject to the grantor trust rules, which meant that the grantor paid the trusts income taxes. Is the payment of the trusts income taxes a taxable gift to the trust? Apparently not. Thus was born the IDIGIT, the intentionally defective grantor trust.
2007 – Valuation For Funding and Distribution Purposes, In Kind Distribution and “Appropriate Interest” on Pecuniary Gifts
When an in-kind distribution is made in satisfaction of pecuniary gift (a gift of a dollar amount), or if a non prorata distribution is made of a percentage interest in the residue of an estate, there will be questions about how to value the property distributed, and what to do about appreciation and depreciation between the time the trust was funded or the date of death of a decedent and the date of distribution. Actually this subject is every bit as important as it is arcane. It is both. Usually, the fiduciary (executor or trustee) will have to either pay interest on a pecuniary gift (determined how?) or allow the gift to share in appreciation or depreciation. Also, there is the question of whether or not gain or loss is recognized by the estate or trust on the distribution. Until you read the Will or Trust and consult state law on the subject you won't know the answers to any of these questions. This article should be of some help in understanding the issues.
I include this Article on the litigation page because if you don't follow the rules, you will be inviting litigation. And, after several years have transpired between, say, a decedent's death and the satisfaction of a legacy, the question of how to value the property distributed to a legatee in satisfaction of the legacy, as well as the question of whether the legatee is entitled to in interest (and if so how much) can make a huge economic difference to the legatee.
2003 – Drafting Wills and Trusts from an Income Tax Perspective A Panoply of Forms
This article contains what I consider to be a rather sophisticated discussion of some important, if abstruse, rules governing the income taxation of estates and trusts.
1999 - Annotated Annual Withdrawal Trust (Crummey Trust)
This is a very popular type of trust. It is primarily used as a means of making gifts of the annual gift tax exclusion amount to a trust, without having the gift taxed or counted against your applicable death tax exclusion. It is very common to have this type of trust invest in life insurance with the annual gifts used to pay the premiums. The tax treatment of these trusts is very convoluted and often uncertain, and keeping one of these trusts qualified takes some work. I drafted a model trust, and then annotated it with footnotes explaining why the provisions in it are there and what tax issues are associated with them. I am somewhat proud of this article, and it is not that far out of date, despite having been prepared for a State Bar of Texas Professional Development Seminar in 1999.
These materials are not meant to and may not be relied upon, but are published for discussion purposes only. Rule 7.04(b) disclosures.
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