Discretionary Trust Distributions From Corpus or Income: Avoiding Beneficiary Challenges and Adverse Tax Consequences

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


Conducted on Wednesday, October 11, 2017

Recorded event now available

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Program Materials

This webinar will provide estate planning counsel and fiduciary advisers with a thorough, practical guide to making discretionary non-liquidating distributions of corpus assets from a discretionary trust. The panel will discuss the liability risks involved for trustees making these distributions, detail various state standards on discretionary distribution of corpus, and outline potential challenges from creditors or other beneficiaries to such distributions.

Description

Determining whether and when to make a discretionary distribution of trust assets presents significant challenges for trustees and estate planning counsel in drafting trusts. Estate counsel must fully understand the impact and risks to a fiduciary in exercising discretion to make distributions, particularly of trust corpus, when structuring distribution provisions in discretionary trusts.

A discretionary trust is a type of complex trust that allows a trustee discretion over income or assets distributed to defined beneficiaries. Generally, trust documents specify standards for discretionary distributions. The most common standard is the health, education, maintenance and support (HEMS) standard, defined in Treas. Reg. §20.2041-1(c)(1) as an “ascertainable standard.”

Trust drafters may include other, “unascertainable” standards to provide guidance to fiduciaries. Absent careful drafting and thoughtful trustee selection, use of an unascertainable standard may trigger a general power of appointment or other tax recognition event.

While courts generally give a wide latitude to a trustee’s exercise of distribution decisions within a discretionary trust, beneficiary challenges to distributions have succeeded in cases where the court finds flaws in the discretionary provisions or the trustee’s exercise of distribution powers. Counsel must be fully aware of permissible standards to deter beneficiary disputes and avoid negative tax consequences.

Listen as our experienced panel provides a practical guide to structuring distribution provisions in discretionary trusts, outlines liability risks involved, details various state standards, and examines potential creditor or other beneficiary claims against a distribution.

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Outline

  1. Discretionary trusts defined
  2. HEMS standard allowable provisions
    1. Health
    2. Education
    3. Maintenance
    4. Support
  3. Unascertainable standards
  4. Risks in structuring discretionary distribution provisions
  5. Areas of successful beneficiary challenges

Benefits

The panel will discuss these and other important topics:

  • Unascertainable standards that present liability or tax risks to fiduciaries
  • Types of discretionary distribution provisions that courts have ruled defective
  • Elements of HEMS standards, IRC 2014 and governing regulations
  • Risks in distributing assets from corpus of a discretionary trust

Faculty

Fair, Kenneth
Kenneth J. Fair

Partner
Wright & Close

Mr. Fair's practice focuses on in the area of general commercial litigation, with an emphasis on complex probate,...  |  Read More

Taylor, Elizabeth
Elizabeth B. (Beth) Taylor

Walny Legal Group

Ms. Taylor focuses her practice on estate planning, gift and estate taxation, business succession planning, charitable...  |  Read More

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Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

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