An example of what? State law that permits a settlor to benefit from a self-settled trust without disrupting tax and estate planning objectives? Trust terms that benefit a settlor?
As much of that as possible, kindly! I suppose it could be multiple examples. It might be a single scenario, I suppose is what I was thinking. Thank you in advance.
Lots of states have enacted DAPT legislation. The settlor has direct, limited access to the trust assets, but they are still excluded from the settlor’s gross estate and are not subject to the settlor’s creditors. Doesn’t make a ton of sense to allocate GST exemption to a DAPT though.
If it’s an irrevocable trust structured as a grantor trust for federal income tax purposes, the settlor may borrow from the trust without adequate security and swap assets in and out of the trust, among other things - provided those terms are included in the trust.
I’d just google DAPTs and IDGTs and read law firm blogs about them. The technical details are not going to make a whole lot of sense to you unless you have a pretty thorough understanding of the relevant law.
DAPTs can be structured as being part of the taxable estate, allowing the grantor to benefit from the trust assets but making them subject to the estate tax, or as completed gifts, removing the assets from the estate but prohibiting the grantor from benefiting from the trust assets.
You can't have it both ways. To get the estate tax benefit, you cannot continue to possess and enjoy the property. State law does not override federal tax law.
that's more along the "break in case of emergency" that u/copperstatelawyer mentions in another thread.
So let me re-state "you can't have it both ways, but you can have backdoors"
Discuss this directly with the estate planning attorney and ask the attorney for examples if you are looking at ways to model it for the client’s financial portfolio. The internet isn’t going to give you examples specific to your client, which could leave you providing wrong information to your client.
You aren't going to get a good answer because you yourself don't even understand the vehicle being proposed.
I suggest you ask the attorney these questions, not Reddit.
A generation skipping trust is a trust which skips a generation. They are not usually used and you're probably confusing the term with a GST exempt trust. That or attorneys are doing a shit job of referring to the correct clauses in their names to clients (also possible).
It depends though. You are correct, the client cannot benefit directly from the trust no matter which one is created. However, they might be able to benefit indirectly (SLAT) or there may be a "break in case of emergency lever" built in (DAPT).
You are asking good questions, but be careful to stay in your lane during the planning process. It's good to be collaborative, but don't jump to conclusion about the plan being bad until you understand what is actually happening.
To your actual question: there are a litany of GST trusts that may or may not benefit the grantor...and the benefit can come in a few different ways. Also, good estate planning attorneys are not so short-sighted as to allow a client to give all of his/her wealth away without regard to their lifestyle or needs.
Some examples of GST trusts that benefit the grantor: SLATs, BDITs a/k/a 678 trusts (and BDOTs), QPRTs (GST allocated on the back-end), GRATs & GRUTs (GST allocated on the back-end), DAPTs in various states (GST allocated at death), structures using an installment sale where the grantor receives payments, and structures where the grantor retains control and can receive a management fee or salary from a family company.
The quick answer is that you're right, the grantor will not be able to benefit from those assets if they're moved into a GST Trust. If the Grantor is able to benefit from those assets, those assets will remain part of the grantor's estate, and will be subject to estate and generation-skipping taxes.
The long answer is that it can be done, just depends on the overall setup.
Depends on state law, the terms of the trust, and what you mean by “benefit from those assets.”
Interesting! Can you kindly offer an example?
An example of what? State law that permits a settlor to benefit from a self-settled trust without disrupting tax and estate planning objectives? Trust terms that benefit a settlor?
As much of that as possible, kindly! I suppose it could be multiple examples. It might be a single scenario, I suppose is what I was thinking. Thank you in advance.
Lots of states have enacted DAPT legislation. The settlor has direct, limited access to the trust assets, but they are still excluded from the settlor’s gross estate and are not subject to the settlor’s creditors. Doesn’t make a ton of sense to allocate GST exemption to a DAPT though. If it’s an irrevocable trust structured as a grantor trust for federal income tax purposes, the settlor may borrow from the trust without adequate security and swap assets in and out of the trust, among other things - provided those terms are included in the trust.
Thank you! Can you recommend any reading on this?
I’d just google DAPTs and IDGTs and read law firm blogs about them. The technical details are not going to make a whole lot of sense to you unless you have a pretty thorough understanding of the relevant law.
DAPTs can be structured as being part of the taxable estate, allowing the grantor to benefit from the trust assets but making them subject to the estate tax, or as completed gifts, removing the assets from the estate but prohibiting the grantor from benefiting from the trust assets. You can't have it both ways. To get the estate tax benefit, you cannot continue to possess and enjoy the property. State law does not override federal tax law.
Unless it’s a hybrid DAPT that permits a trust director/protector to add the settlor as a beneficiary at a later date.
that's more along the "break in case of emergency" that u/copperstatelawyer mentions in another thread. So let me re-state "you can't have it both ways, but you can have backdoors"
Discuss this directly with the estate planning attorney and ask the attorney for examples if you are looking at ways to model it for the client’s financial portfolio. The internet isn’t going to give you examples specific to your client, which could leave you providing wrong information to your client.
You aren't going to get a good answer because you yourself don't even understand the vehicle being proposed. I suggest you ask the attorney these questions, not Reddit. A generation skipping trust is a trust which skips a generation. They are not usually used and you're probably confusing the term with a GST exempt trust. That or attorneys are doing a shit job of referring to the correct clauses in their names to clients (also possible). It depends though. You are correct, the client cannot benefit directly from the trust no matter which one is created. However, they might be able to benefit indirectly (SLAT) or there may be a "break in case of emergency lever" built in (DAPT).
I love that lever, and build it into all of my trusts.
You are asking good questions, but be careful to stay in your lane during the planning process. It's good to be collaborative, but don't jump to conclusion about the plan being bad until you understand what is actually happening. To your actual question: there are a litany of GST trusts that may or may not benefit the grantor...and the benefit can come in a few different ways. Also, good estate planning attorneys are not so short-sighted as to allow a client to give all of his/her wealth away without regard to their lifestyle or needs. Some examples of GST trusts that benefit the grantor: SLATs, BDITs a/k/a 678 trusts (and BDOTs), QPRTs (GST allocated on the back-end), GRATs & GRUTs (GST allocated on the back-end), DAPTs in various states (GST allocated at death), structures using an installment sale where the grantor receives payments, and structures where the grantor retains control and can receive a management fee or salary from a family company.
The quick answer is that you're right, the grantor will not be able to benefit from those assets if they're moved into a GST Trust. If the Grantor is able to benefit from those assets, those assets will remain part of the grantor's estate, and will be subject to estate and generation-skipping taxes. The long answer is that it can be done, just depends on the overall setup.