Take-Away: An in terrorem clause used in a trust, also known as a ‘no-contest’ clause,  is an effective way to prevent after-death challenges to the validity of the trust (or a Will.) But often creative efforts are taken by lawyers to discern how a probate court would react to a potential challenge to the trust […]

Take-Away:  When the settlor of the a revocable trust becomes mentally incapacitated,  the settlor’s lack of mental capacity alone will not cause the trust to automatically become irrevocable. Illogical as that sounds, it is the law in Michigan. Background: Other individuals beside the settlor may directly or indirectly hold the power to terminate a trust, such […]

Take-Away: Accounting income is not the same thing as taxable income. This becomes clear with reference to Section 409 of the Uniform Principal and Income Act (UPIA). Generally an irrevocable trust that receives a distribution from an IRA or other qualified retirement plan must classify 10% of that distribution as trust accounting income; the remaining […]

Take-Away: The proposed Regulations for IRC 199A confirm that real estate or equipment leasing activities can qualify for the 20% federal income tax deduction under IRC 199A as a separate trade or business. The Regulations apply the IRC 162 definition of a trade or business for non-commonly controlled rental activities. Following IRC 162 definitions can, […]

Take-Away: As noted previously, the IRS has provided guidance under IRC 643(f) with new proposed Regulations, declaring that it will aggregate several trusts for the purpose of identifying the reported taxable income from multiple trusts. This ‘aggregation’ approach is intended to have the effect of disqualifying  trusts with common beneficiaries that hold a trade or […]

Take-Away: The IRC 199A 20% income tax deduction is not available for high wage earners based on whether their business entity engages in certain service activities, referred to as Specified Service Trade or Businesses as identified in the proposed IRC 199A Regulations. The eligibility for the income tax deduction is also based on the amount […]

Take-Away: The 2017 Tax Act eliminated the ability to recharacterize a converted Roth IRA back into a regular IRA, effective January 1, 2018. However, Roth IRA conversions done in 2017 can still be recharacterized ‘back’ to a traditional IRA if that recharacterization occurs before October 15, 2018. Since a Roth IRA recharacterization takes time to […]

Take-Away: An IRA that was made payable to the trustee of a Joint Trust, which became irrevocable on the death of the IRA owner, was nonetheless permitted to be rolled out of the Joint Trust and into a rollover IRA by the surviving spouse. As a result, the IRA was not treated as an inherited […]

Take-Away: A donor who negotiates  ‘naming rights’ in connection with a substantial philanthropic gift to a tax exempt entity could be jeopardizing his/her full charitable income tax deduction due to the Tax Code’s excess benefit rule. Background: A donor has the burden of proof of the fair market value of the amount that the donor […]

Take-Away: Michigan has two separate statutes that permit a trustee to decant trust assets to a new trust created by the trustee to ‘fix’ or ‘update’ on older irrevocable trust. While those statutory powers, whether the trustee actually decides to exercise a statutory power to decant trust assets is another matter. Background: Twenty-seven states have […]