Structuring Non-Grantor Trusts for Wealth Transfers and Income Tax Planning

Current tax provisions and potential tax law changes accelerate the need for estate planners to revisit existing wealth transfer structures. Individuals using grantor trusts to minimize estate tax exposure may be better served transferring assets to non-grantor trusts to instead reduce income tax liability.

Although the estate tax exemption may eliminate estate tax concerns for higher net worth taxpayers, lost deductions will hit many taxpayers much harder, increasing the federal and state income tax burden on many income-generating assets. Additionally, some individuals may find that paying the income tax attributable to a trust is too burdensome. Under these circumstances, grantor trusts aren't very effective to minimize or defer wealth transfer taxes.

A non-grantor trust is a separate legal entity taxed as a separate taxpayer, allowing for a deduction for distributions paid to beneficiaries while paying its tax on undistributed income. While it is a practical option for income tax planning, it carries risks, such as higher income tax brackets, lack of access to trust assets by the grantor, and the lack of eligibility for a step-up in basis for gifts to non-grantor trusts.

Under some circumstances, estate planners should consider restructuring existing grantor trust vehicles to convert trusts holding assets, such as real estate, to non-grantor trusts. Additionally, certain spousal trusts may benefit from conversion to non-grantor trust status by including an "adverse party" with the right of approval over marital distributions.

Listen as our experienced panel provides a practical guide to structuring non-grantor trusts, key provisions, migrating assets from grantor trusts to non-grantor trusts to minimize income tax on trust assets, and other crucial considerations for effective estate and tax planning with non-grantor trusts.

1. Overview of non-grantor trusts and applicable rules
2. Structuring non-grantor trusts and crucial provisions
3. Converting from grantor to non-grantor trusts
4. Taxation of non-grantor trusts
5. Best practices for trust and estate attorneys

The panel will discuss these and other key issues:

• Critical considerations for structuring non-grantor trusts
• Switching off grantor trust status of existing trusts
• Using "adverse parties" to provide non-grantor trust status to spousal trusts
• Using incomplete gift non-grantor trusts (INGs) to minimize state income tax
• State income tax treatment of non-grantor trusts
• Tax impact of complete gift trusts vs. incomplete gift trusts
• Best practices and pitfalls to avoid for estate planners

Learning Objectives

After completing this course, you will be able to:

• Identify key tax issues when structuring non-grantor trusts
• Ascertain methods for using incomplete gift non-grantor trusts (INGs) to minimize state income tax
• Understand the state income tax treatment of non-grantor trusts
• Discern the tax impact of complete gift trusts vs. incomplete gift trusts

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, dealing with complex multi-state trust and estate tax calculations and reporting; supervisory authority over other preparers/accountants. Specific knowledge of basic apportionment methods, understanding of differences between tangible and intangible property for state income tax purposes; familiarity with trustee powers and residency rules.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).