Exchanging assets of equivalent value with a grantor trust is a great way to obtain a step-up in income tax basis after the grantor’s exercise of the retained power. That said, the exercise of that power of substitution may run squarely into the trustee’s fiduciary duty to protect trust assets for the benefit of the trust beneficiaries.

We often learn the most from the mistake made by others. The very aggressive planning done in Fields within a few weeks of Ms. Fields’ death to claim very large valuation discounts using a limited partnership ‘wrapper’ is a good reminder that all too often creating valuation discounts on paper, is usually ‘too good to be true.’ When you consider that this type of aggressive estate planning, often motivated by greed of the heirs, can lead to a 20% penalty in addition to the higher federal estate tax liability, think twice before going ‘hog wild.’

The IRS’s assertion of the step-transaction doctrine is a tax trap that can be planned for, and around, with forethought and attention to details. When thinking about any transfer tax strategy that uses a lifetime gift, whether it is to a SLAT or any other transfer to an irrevocable trust, the potential assertion of the step-transaction doctrine always needs to be in the back of the mind of the planner and his/her clients. It can be avoided with advance planning, yet it is more apt to occur if there is haste in putting the plan in place. Time and following formalities are the best protection from the step-transaction doctrine.

Ever heard of a Ulysses Clause in estate planning? Admittedly, it is a rare provision sometimes found in either a will or a trust. With the world becoming more and more aware of elder abuse and the financial exploitation of the elderly, some individuals might consider the utilization of some type of a Ulysses Clause to provide both a defined procedure and more protection for their estate planning documents.

Equity looks at the substance of an undertaking, not to its form. Consequently, the equitable proceeding for a trust’s reformation can be a powerful remedy to use, especially now that the MCL 700.7415 permits such a reformation, even if the trust’s terms are unambiguous, and even if the mistake was in fact or in law, and whether the mistake was in expression or inducement. Less clear, so far anyway, is who has legal standing to assert the trust reformation remedy, now that courts are no longer strictly adhering to privity to the transaction. Probably more clear is that a trustee should not be filing any trust reformation proceedings in light of the trustee’s many fiduciary duties associated with the trust- as written.

The benefits of a Qualified Small Business Stock (QSBS) exclusion from capital gains taxes may soon get even better. This is only a proposal in the Senate’s version of the budget reconciliation bill, not the House’s version, so it remains to be seen if these QSBS proposals will ever make their way into amendments to the Tax Code. Perhaps they will be viewed as just one more tax break for the wealthy. Who knows?

Naming a trust as the designated beneficiary of an IRA creates considerable confusion since it triggers multiple factors and conditions set-forth in the Tax Code. This private letter ruling provides some insight and guidance into how beneficiary designations might be structured when a trust is named as the beneficiary of a decedent’s IRA. The questions ask and the scope and complexity of the IRS’s response, does suggest however that it would have been much easier for Irv to have set up the private foundation during his lifetime, and directly name the private foundation as the beneficiary one of Irv’s IRAs, and that Irv could have simply named the individuals directly as the beneficiaries of his remaining IRAs, all without incurring the expense of the need to ask for a private letter ruling.

Both versions of the House and Senate budget reconciliation bills include the new savings vehicles for minors, the Trump Account. Apparently Trump accounts are intended to introduce more Americans to wealth-building opportunities. But the Tax Code already has about 10 savings inducement provisions and adding yet another just is another layer of complexity While that may be so, these accounts seem to be very complicated, and highly unlikely to be used lower-income families. Perhaps it would have been easier to expand the scope of permissible tax-free distributions using a 529 account that many are familiar with than create yet another set of rules and restrictions. Better yet, Congress should explore creating a Universal Savings Account for all Americans, without so many conditions.

The IRS recently provided guidance on how to identify digital assets held by a broker when the digital assets are sold or exchanged for the purpose of determining tax basis and the holding period for the transferred digital assets. As more individuals decide to speculate and hold digital assets, the need to identify those digital assets sold or exchanged by their owner will become even more important for tax reporting purposes, along with the tax revenues that Congress expects to receive from this higher level of tracking and reporting.

If a parent/grandparent is asked to personally guarantee a loan to a family member, it would be wise to report that personal guarantee on a Form 709 Gift Tax Return each year that the guarantee is outstanding.