Converting to Nongrantor Trusts to Minimize Income Tax: Maximizing Increased Exemption Benefits

Switching Off Grantor Trust Features in Existing Trusts, Structuring Multiple Trusts to Preserve Deductions

Note: CPE credit is not offered on this program

Recording of a 90-minute CLE webinar with Q&A


Conducted on Tuesday, February 4, 2020

Recorded event now available

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Program Materials

This CLE webinar will provide estate planning counsel with a thorough and practical guide to using nongrantor trusts to minimize income tax on trust assets. The panel will focus on the new tax regime where income tax planning is often more important than estate tax planning, detailing the difference in tax treatment under the tax reform law, and will discuss converting existing grantor trusts to nongrantor trusts. The webinar will outline jurisdictional considerations in turning off grantor trust features and offer specific tools to maximize the income tax benefits of nongrantor trusts under the new wealth transfer tax regime.

Description

The new tax law provisions increase the estate tax exemption, reducing or eliminating certain deductions, and accelerates the need for estate planners to revisit existing wealth transfer structures. Individuals using grantor trusts to minimize estate tax exposure may be better served transferring assets to nongrantor trusts to reduce income tax. This planning can also create additional income tax deductions under the new pass-through business rules.

The estate tax exemption amount of $22.8 million for married couples, for 2019 ($23.16 million for 2020), eliminates estate tax concerns for even higher net worth taxpayers, at least until the exemption sunsets. However, lost deductions will hit many taxpayers much harder, increasing the federal and state income tax burden on many income-generating assets. Grantor trusts, long the preferred vehicle for settlors looking to minimize or defer wealth transfer taxes, will be less impactful.

Planners should consider restructuring existing grantor trust vehicles to convert trusts holding assets such as real estate to nongrantor trusts. Additionally, certain spousal trusts may benefit from conversion to nongrantor trust status through the inclusion of an "adverse party" with the right of approval over marital distributions.

Listen as our experienced panel provides a practical guide to migrating assets from grantor trusts to nongrantor trusts to minimize income tax on trust assets and use up the temporarily increased estate exemption amounts.

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Outline

  1. Tax impact of new tax law on current grantor trust structures
  2. Switching off grantor trust features in current trusts
  3. Converting spousal trusts to nongrantor status through the use of adverse parties
  4. Incomplete gift nongrantor trusts

Benefits

The panel will review these and other relevant topics:

  • Using incomplete gift nongrantor trusts (INGs) to minimize state income tax
  • Switching off grantor trust status of existing trusts
  • Using "adverse parties" to provide nongrantor trust status to spousal trusts
  • State income tax treatment of nongrantor trusts
  • Tax impact of complete gift trusts vs. incomplete gift trusts
  • How to increase the 199A deduction
  • Potential benefits under IRC 1202
  • How to increase the SALT deduction by $10,000 per trust

Faculty

Michaels, Philip
Philip J. Michaels

Partner
Norton Rose Fulbright US

Mr. Michaels is a partner in the New York office focusing on estate and tax planning, including estate and trusts...  |  Read More

Ure, John
John T. Ure, J.D.

Principal, Tax Services
Cherry Bekaert

Mr. Ure focuses his practice on serving the needs of high-net-worth business owners, individuals and their families. He...  |  Read More

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