Springing the Delaware Tax Trap: Drafting Limited Powers of Appointment to Increase Asset Income Tax Basis

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


Conducted on Tuesday, June 28, 2016

Recorded event now available

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Program Materials

This webinar will provide estate planners and advisers with a thorough and practical guide to utilizing the Delaware Tax Trap technique to increase asset basis and minimize income tax. The panel will offer guidance on drafting the powers of appointment needed to construct the trap, and discuss circumstances under which an inter vivos exercise of the appointment powers would yield a more favorable result. The speakers will also detail state law provisions covering perpetuities that planners and counsel need to be aware of in making sure that the trap is properly “sprung.”

Description

A sophisticated estate planning technique that is becoming increasingly utilized is the use of limited powers of appointment to “spring” a “Delaware Tax Trap.” The trap leverages a state’s rule against perpetuities and serves to increase asset basis without triggering a gift tax liability.

The technique involves drafting a limited power of appointment to a third party over some or all the assets in the estate, and having the third party exercise that power. The exercise causes the assets subject to the power to be included in the appointee’s estate. The basis of the assets receives a step-up, while creditor protection is maintained. While the limited power is most frequently utilized as a testamentary grant, there are circumstances in which an astute planner may have the appointee exercise the power inter vivos, such as when the exercise leads to a re-transfer of assets.

Since the Delaware Tax Trap technique works within the framework of a state or local rule against perpetuities, estate planners and counsel must ensure that the exercise of the limited power of appointment is sufficient to trigger a new perpetuities period to achieve the basis step-up results.

Listen as our experienced panel provides a practical and comprehensive guide to the income tax savings opportunities available through proper structuring of Delaware Tax Trap powers of appointment.

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Outline

  1. Using a Delaware Tax Trap powers of appointment designation to optimize basis
  2. State considerations—making sure the appointment powers will trigger a new perpetuities period
  3. Drafting suggestions
  4. When to exercise the limited power of appointment to "spring the trap"
  5. Illustrations of basis step-ups—the Trap in action

Benefits

The panel will discuss these and other important issues:

  • Drafting limited powers of appointment provisions to set the trap
  • Making sure the trap springs on the appointee rather than the settlor
  • How to make sure that exercise of the limited power of appointment conforms to the state and local perpetuities provisions so that the exercise starts a new perpetuities period
  • Use of an inter vivos power of appointment to set the trap

Faculty

Steven T. O'Hara
Steven T. O'Hara

Shareholder
Bankston Gronning O'Hara, P.C.

Mr. O'Hara's practice focuses on estate planning, business planning, estate and trust administration, and...  |  Read More

Jeffrey C. Wolken
Jeffrey C. Wolken

Administrative Vice President
Wilmington Trust Company

Mr. Wolken is responsible for developing trust planning strategies for wealthy individuals and families throughout the...  |  Read More

Other Formats
— Anytime, Anywhere

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:

CLE On-Demand Video

$297

Download

CPE Not Available

$297