With portability, the estate tax concerns of most clients have been alleviated. However, in some cases, the generation skipping transfer tax (“GSTT”) problem remains unsolved, because the portability provisions of Internal Revenue Code (“IRC”) § 2010(c) do not port or transfer the GST exemption of the deceased spouse (“Decedent”) to the surviving spouse (“Survivor”).
Portability and its new developments have caused many estate planners to move away from drafting the previously oft used “A-B trust” or “two trusts.” Instead, estate planners have increasingly employed the disclaimer trust – a trust where all of the trust assets stay in one trust unless the Survivor decides for estate tax or non-tax reasons to disclaim assets to the equivalent of a bypass trust. Because of portability, the disclaimer trust will satisfy the estate tax objectives of many married clients without the necessity of creating an “A-B trust.” However, the disclaimer trust will not fully satisfy the needs of every client. This is particularly the case for those clients who may be subject to the GSTT.
For these clients instead of employing the pure disclaimer trust, they can either revert back to using the traditional “A-B” trust or consider creating a QTIP trust and making a reverse QTIP election. Depending on the nature of the client’s assets and the domiciliary of the client, however, it may be more advantageous from an income tax perspective to avoid the bypass trust in the traditional “A-B” trust regime. In these circumstances, use of a QTIP trust with a reverse QTIP election could be a fruitful solution.
By making a reverse QTIP election under IRC § 2652(a)(3) over a properly executed QTIP trust (with an inclusion ratio of zero), the Decedent is deemed to be the transferor of the assets passing under the QTIP trust for GSTT purposes. In other words, no QTIP election is deemed to have been made for purposes of GSTT. Therefore, the Decedent’s GSTT exemption can be allocated to the QTIP trust even though the trust is includable in the Survivor’s estate for estate tax purposes. Effectively, then, the Decedent is able to port his or her GSTT exemption to the Survivor (to the extent the QTIP trust is funded). In this way, married clients who may be subject to GSTT may avail themselves to the benefits of portability while also maximizing their GSTT exemption. This solution may result in greater usage of the reverse QTIP election.
-Attorney Michael D. Lum
The main component of the estate plan for most people is a revocable living trust that they establish during their lifetime. When you create a revocable living trust, you can only plan for the present and for the near foreseeable future. However, an unanticipated change in circumstances in your life may necessitate the amending of your revocable living trust. Simple examples are when you wish to change the successor trustee or provide for a specific bequest to a new beneficiary or change the amount of a monetary bequest going to a beneficiary. In these situations, how do you amend the trust?
First of all, oral changes to a trust agreement will never be legally enforceable (i.e. trustor tells someone that his car should go to a child or grandchild.) The reason for the unenforceability of oral amendments is that once the trustor is deceased, he or she is not there to verify (or deny) the purported oral amendment. If this was not the rule, anyone could allege that the trustor orally changed the trust before he or she died, and there would be no way to prove or disprove this.
In order to determine how to properly amend your trust, the provisions of the revocable living trust agreement must be closely examined. The agreement will specifically state how the trust can be amended. Oftentimes the trust agreement will provide that any amendment to the trust must be in writing, dated, signed by the trustor and delivered to the trustee. It is essential that the terms of the trust regarding amendment be strictly adhered to. Even when amendments are made in writing, there can be problems. People will sometimes attempt to amend their trust by marking out some provision and handwriting something in its place. They may even date and initial the change. However, if the trust agreement requires that the amendment be signed by the trustor and it is not re-signed, the amendment fails to satisfy the amendment conditions as set forth in the trust agreement. This, of course, can have serious ramifications, including the possible failure of the trustor’s intentions being carried out once he or she has died. The successor trustee or an interested party could petition the court to take jurisdiction of the trust and determine what the intent of the now deceased trustor was. This seems to be a failure, however, since one of the main advantages of a revocable living trust is to avoid court involvement and the accompanying costs and fees. Also the court may construe the trust contrary to what the true intent of the deceased trustor really was.
Accordingly, it is best to always consult a qualified estate planning attorney such as those at the Law Offices of JEFFREY BURR to assist you in the proper amendment of your trust.
We encourage all of our clients to execute a healthcare power of attorney and a directive to physicians. Under Nevada law, these two documents are the equivalent of a living will and are also sometimes known as an advanced care directive. The names used from state to state and between different attorney’s offices can be confusing, but the content of the documents is basically the same:
These documents are of great importance for a client having health issues. A person going in for a scheduled surgery or hospital stay usually has time to remember and gather these documents. But a person going into the hospital unexpectedly is not likely to have these documents at hand.
An article in the New York Times discussed this issue with a social worker in New Jersey. She explained the frustration in having to try and track down these documents from law firms, family, and friends of patients. The story encourages people to provide copies of their healthcare documents to their primary physician and to their named healthcare agents. I agree with this advice.
Luckily in Nevada, we have a free resource that can also help avoid this problem. The Living Will Lockboxadministered by the Nevada Secretary of State is a free program offered to Nevada residents where your healthcare documents are securely scanned and stored for easy retrieval. The Living Will Lockbox affords healthcare providers and patients easy access to the patient’s living will or advanced care directive by allowing these documents to be easily downloaded using the patient’s last name and a registration ID number. Following registration the Living Will Lockbox provides a card for your wallet containing your registration number and the web address. This service is a great idea and makes your documents easily accessible in an emergency situation. Bottom line: make sure your documents are accessible by either utilizing the Living Will Lockbox or providing copies of your documents to your physician or healthcare agents.
- Jason C. Walker, Esq.
Interesting article by our own Jason Walker, Esq. in November 2013 Nevada Business Magazine. http://www.nevadabusiness.com/2013/11/estate-tax-changes-require-immediate-attention/
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