Tax Reporting Mechanics of Trust Decanting: Tackling Compliance Issues Absent IRS Guidance

Description

Trust decanting--the distribution of trust property from one trust to another--is a popular and frequently utilized vehicle for keeping current and tax-efficient estate plans. Despite the growing prevalence of decanting as a strategy, the IRS has not provided authoritative guidance on proper tax reporting treatment of decanting transactions. Indications are that a definitive statement may not be forthcoming any time soon.

In addition to notification requirements, tax advisers and compliance professionals must deal with several critical issues in reporting decanting transactions. Determining whether the second trust should be treated as an entirely new trust or simply as a continuation of the first trust has significant reporting consequences.

Another critical issue is the treatment when the decanting may generate gain recognition, such as in circumstances of distributions of negative-basis assets or creating new powers of appointment in the second beneficiary trust. Advisers must be sure to address the new vs. continuation question in reporting decanting transactions.

Listen as our experienced panel provides a thorough and practical guide to the tax reporting challenges and opportunities of decanted trusts.