Discretionary Trust Distributions of Principal and Income: Avoiding Beneficiary Challenges and Adverse Tax Consequences

Note: CPE credit is not offered on this program

A live 90-minute CLE webinar with interactive Q&A


Wednesday, December 2, 2020

1:00pm-2:30pm EST, 10:00am-11:30am PST

Early Registration Discount Deadline, Friday, November 6, 2020

or call 1-800-926-7926

This CLE webinar will provide estate planning counsel and fiduciary advisers with a thorough, practical guide to making discretionary distributions of principal or income from a discretionary trust. The panel will discuss liability risks involved for trustees making these distributions, appropriate factors, considerations, and standards for evaluating discretionary distributions, as well as 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 the trust principal, 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 measure 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 guide fiduciaries. Absent careful drafting and thoughtful trustee selection, use of an unascertainable standard may trigger a tax recognition event such as a general power of appointment.

While courts generally give wide latitude to a trustee's exercise of discretion to make distributions, 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 adverse tax consequences.

Listen as our experienced panel provides a practical guide to structuring distribution provisions in discretionary trusts, outlines liability risks involved, discusses appropriate factors, considerations, and standards, and examines potential creditor or other beneficiary claims arising from a trustee's decision to grant or deny a discretionary distribution request.

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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 review these and other relevant 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 the principal or income of a discretionary trust

Faculty

Doyle, Jere
Jeremiah W. (Jere) Doyle, IV

Senior Vice President
Bank of New York Mellon

Mr. Doyle provides clients with integrated wealth management advice on how to hold, manage and transfer their...  |  Read More

Lee, Francine
Francine Lee

Senior Manager
Ernst & Young

Ms. Lee brings over 25 years of experience creating income tax and estate planning solutions for high net worth clients...  |  Read More

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Download

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DVD

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$247 + $24.45 S&H