Missives

The early termination of an irrevocable trust can lead to deemed gifts by the trust remainder beneficiaries. The challenge is how to go about valuing those deemed gifts. The Tax Court has now provided some guidance in calculating deemed gifts, addressing some interesting valuation arguments.

The most tax effective way to make charitable gifts is with a qualified charitable distribution, or QCD.

How an agent manages the principal’s assets under the ‘new’ Michigan Power of Attorney state should change. The statute’s guidance on how an agent’s decisions can impact the principal’s estate plan will be of some help, along with its exoneration provisions. However, the level of flexibility accorded the agent will have to be reflected in the durable power of attorney instrument itself with respect to what duties the statute imposes that can be waived by the principal, and possibly the level of exposure the agent might face with breach of trust and/or conversion claims. Clearly the courts in the Manny case had little trouble in finding both breach of trust and conversion by the agent, who under the new statute could have faced treble damages for conversion. How many agents understand this exposure is doubtful, so it’s important to alert them to their responsibilities under the law, e.g., recordkeeping, and their need to avoid actions that look like a conversion of the principal’s property.

These are very beneficial and welcome changes to the UTMA which are long overdue. Given the ‘snail’s pace’ at which Michigan’s Legislature works, with virtually no priority given by it to estate planning matters, it is possible for a Will or Trust that intends to use a UTMA if a minor (or anyone under the age 25 years) is to receive property from an estate or trust, or by gift, to make express reference in the governing instrument to the “2026 version of Uniform Transfers to Minors Act, whether or not that uniform legislation has been adopted in Michigan.”

Direct or indirect control over assets transferred to an irrevocable trust can lead to estate tax problems for the transferor. That same level of direct or indirect control over trust assets might also lead to an unfortunate division of assets in a later divorce.

While our tendency is to treat all Roth accounts the same, that is a mistake, especially when it come to taking distributions from the Roth account, e.g., ordering rules for Roth IRA distributions vs pro rata distributions for Roth 401(k) accounts. My recurring lament: Why can’t Congress just come up with a single set of rules that apply to all types of retirement accounts for both contributions and distributions, either pre-tax or Roth? The rules do not need to be nearly this complicated (or contradictory.)

Quick-Take: Treasury just provided helpful guidance when a charitable remainder annuity trust (CRAT) is funded with appreciated assets, and the CRAT turns around, sells the appreciated asset, and uses the net sales proceeds to purchase an annuity.

: It may be much easier, and cheaper, for a beneficiary to be certified as chronically ill than disabled, if the goal is to have the beneficiary classified as an Eligible Designated Beneficiary (EDB) for stretch distributions from an inherited IRA.

The common law cy pres doctrine that governs charitable trusts is codified in the Uniform Prudent Management of Institutional Funds Act that governs most charitable institutions.

A nonjudicial settlement agreement cannot be used to modify the terms of a trust, or to terminate the trust. That is clear. What is not always clear is what the material purpose of a trust is, especially if the settlor does not expressly identify and state in the trust instrument his/her intended material purpose. Could the ‘interested parties’ agree in writing to construe what the settlor’s material purpose of the trust is, and thus bind the probate court? Doubtful. However, tying the ability to enter into a binding nonjudicial settlement agreement to a vague or subjective determination of the trust’s material purpose seems to limit the effectiveness of such an agreement.