I'm pleased to be invited to participate as an A4A blogger. I plan on updating you on estate planning and asset protection matters as they develop. I also look forward to sharing my thoughts on A4A webinars, including the session on December 13. See you there!
For this first post, let’s focus on three timely estate planning topics for financial planners.
Using Incomplete Non-Grantor Trusts To Avert State Income Tax On Capital Gains
Recently, the IRS issued a private letter ruling (PLR 201310002) after several years of silence on the issue of incomplete non-grantor trusts. By way of background, individuals who live in high tax states and who have significant appreciated assets have used a technique, commonly referred to as a DING trust (Delaware incomplete non-grantor trust). By structuring the transfer as an incomplete gift to a trust governed by the laws of a state that does not impose a state income tax and using a distribution committee consisting of adverse parties (typically beneficiaries) they were able to avoid state income tax on the capital gains. This is most useful where a client may be selling a business at a substantial gain. The IRS issued a revenue ruling in 2007 which led to uncertainty as to some tax consequences of such a structure effectively chilling further transactions. But now with this favorable private letter ruling (which, however, cannot be used as precedent by other taxpayers) there is renewed interest in this. Because the requirements for a transfer to be an incomplete gift require the settlor to retain not only a testamentary power of appointment but also, under this ruling, a lifetime power, the only three states that presently provide creditor protection (which is necessary to avoid grantor trust status) are Alaska, Nevada and Wyoming.
Transfer Of "Digital Assets" Upon Death
A subject gaining media attention is the transfer of "digital assets" upon death (or disability). Law on this emerging issue is being developed at the state-level and the topic is under study by a drafting committee of uniform law commissioners. Uncertainty often results related to the different contractual policies social media companies like Facebook, Twitter, and LinkedIn require users to agree to accept. Who can be given authority to access digital media, sell or exploit it has emerged as a major issue. For example, who is entitled to your iTunes downloads and domain names when you die? See Arden Dale's recent WSJ article to for details on this.
Over-Reliance On Portability In Their Estate Planning
Finally, though not new news, many married couples may be placing too much reliance on portability of the estate-tax exclusion in their estate planning. Though there are many benefits of portability, there can be detriments. Each client's situation requires a careful review of the pros and cons.