Structuring Trust Powers of Appointment for Tax Minimization and Asset Protection

Utilizing Optimal Basis Increase Trusts, Navigating the Uniform Power of Appointment Act, and Avoiding Adverse Tax Traps

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


Conducted on Thursday, April 27, 2017
Recorded event now available


This CLE webinar will provide estate planning counsel with a thorough and practical guide to structuring powers of appointment and their exercise in trust documents and wills. The panel will go beyond the basics to offer specific drafting tools to ensure that powers of appointment do not result in inadvertent tax consequences.

Description

Powers of appointment in trust documents are an often overlooked estate planning and wealth transfer tool. While most planning counsel have a working knowledge of this powerful tool, planners often underutilize the basis adjustment and asset protection advantages that well-drafted powers of appointment provisions can provide.

The basic definition of a power of appointment is the right of a donee, conferred usually by deed or trust, to direct property to another person. Within the bounds of estate planning, however, there are various types of powers, each of them carrying specific transfer and income tax consequences.

Planning counsel must determine the type and extent of the powers of appointment, based on the testator’s intent. At the same time, counsel must avoid creating unintended powers in the trust document. Further, what kinds of restrictions can be added without impacting the desired tax or asset protection results?

One type of trust structure that can provide heightened planning flexibility is the Upstream Optimal Basis Increase Trust. This is an irrevocable grantor trust that has a senior generation family member as a beneficiary who also holds a testamentary power of appointment over specified assets in the trust. Estate planning counsel can provide significant value by structuring Upstream OBITs under appropriate circumstances.

Listen as our experienced panel provides a thorough and practical guide to structuring powers of appointment in trust documents to provide asset protection and inter-generational transfers while avoiding unnecessary transfer tax. The panel will discuss asset protection, spousal elective share and other non-tax considerations in utilizing powers of appointment, as well as their use for tax shifting and securing a step up in basis, including the issues surrounding the granting of such powers in trusts to older relatives (a.k.a. Upstream Optimal Basis Increase Trusts).

Outline

  1. Structuring powers of appointment
    1. General basics from Common Law Restatement
    2. Exceptions to general powers
    3. Limited or “special” powers of appointment
    4. IRC Sections 2041/2514 and variances from state law
    5. Inter vivos powers of appointment
    6. Effect of anti-lapse statutes
    7. Exercise of lifetime powers by agents
  2. Tax traps to avoid (or exploit) in exercise of powers of appointment
  3. Avoiding generation skipping transfer tax events
  4. Upstream optimal basis increase trusts
  5. Problems with the new uniform power of appointment act
  6. Asset protection issues involving powers of appointment

Benefits

The panel will review these and other key issues:

  • When powers of appointment can result in a step-up (and step down) in assets’ basis
  • How to structure “five-and-five” powers to avoid gift tax consequences
  • How general powers create beneficiary deemed owner “grantor” trusts under Section 678
  • Basics of the Beneficiary Defective Irrevocable Trust (BDIT)
  • How an Optimal Basis Increase Trust operates to minimize income tax and maximize basis
  • How powers of appointment can provide asset protection

Faculty

Salvatore J. LaMendola, Member
Giarmarco Mullins & Horton, Troy, Mich.

Mr. LaMendola specializes in charitable planning and planning for retirement plan benefits. He is the editor of the firm’s E-Update, a monthly publication that summarizes several recent developments of interest to estate planners. He is also the assistant editor of the firm’s Newsletter, a quarterly publication that contains several articles on estate planning, business succession planning and charitable planning topics. He has been a member of the firm since 1996 and of the State Bar of Michigan since 1994.

Edwin P. Morrow, III, Esq., Director, Wealth Transfer Planning and Tax Strategies
Key Private Bank Family Wealth Advisory Services, Dayton, Ohio

Mr. Morrow advises high net worth private banking clients on tax, trust and estate planning matters. He previously maintained a private law practice in Cincinnati and Springboro, Ohio, working in taxation, probate, estate and business planning. He is a certified specialist in estate planning, probate and trust law through the Ohio State Bar Association. Mr. Morrow frequently contributes his expertise to lectures and publications analyzing estate planning issues.


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Customer Reviews

The program was well organized and discussed the major issues.

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Wolff & Samson

Better than I expected. Well done on both subject matter and production quality.

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The webinar offered excellent insight into some specific areas.

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Estate Planning Advisory Board

Gary D. Altman

Principal and Founder

Altman & Assoc.

Brian M. Annino

Partner

Annino Law Firm

Richard S. Franklin

Member

Franklin Karibjanian & Law

J. Leigh Griffith

Partner and Practice Group Leader - Tax

Waller Lansden Dortch & Davis

L. Paul Hood, Jr.

Consultant, Speaker and Author

The University of Toledo Foundation

Denise L. Iocco

Partner

Windels Marx Lane & Mittendorf

Donna J. Jackson

Atty

Donna J. Jackson, Attorney at Law

Salvatore J. LaMendola

Member

Giarmarco Mullins & Horton

Edwin P. Morrow, III, Esq.

Senior Wealth Specialist

Key Private Bank Wealth Advisory Services

Scott K. Tippett

Atty

The Tippett Law Firm

Susan M. von Herrmann

Partner

Perkins Coie

or call 1-800-926-7926

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