Thursday, February 20, 2014
Luke T. Tashjian (Attorney – Stamford, Connecticut) recently published an article entitled, The Use of Beneficiary Defective Trusts in Modern Estate Planning, Real Property, Trust and Estate Law, Vol. 48, No. 2 (Fall 2013). Provided below is the editors’ synopsis of this article:
It has become increasingly popular for practitioners to use a sale by a beneficiary to a trust that is owned by the beneficiary for income tax purposes as an alternative to a more traditional sale by a grantor to a grantor trust. This increase in the popularity of sales to beneficiary-owned trusts has resulted from the belief that a beneficiary who sells assets to his or her trust can retain a beneficial interest in the trust corpus while enjoying all of the benefits that are available in a more traditional sale to a grantor trust—benefits such as the removal of future appreciation of the transferred assets from the transferor’s gross estate.
A properly structured transaction involving a sale to a beneficiary-owned trust may provide a client with opportunities that are unavailable through more traditional estate planning techniques, but these complex transactions will fail to yield the intended benefits unless practitioners carefully structure the trust, its funding, and the sale to the trust. This Article analyzes the states, regulations, and rulings that support the use of sales to beneficiary-owned trusts as an estate planning vehicle, and based upon this analysis, sets forth guidance on the proper methods for structuring, funding, and selling assets to beneficiary-owned trusts.