Last week it was my privilege to make two presentations at the annual state meeting and retreat of the South Carolina chapter of the National Academy of Elder Law Attorneys. The first presentation I gave discussed the ins and outs of trusts as beneficiaries of IRAs and retirement plans. Trusts can be used to protect the assets from various risks, such as creditors, divorce, the beneficiary’s own mismanagement, and even Medicaid (by using a Special Needs Trust). If a trust is structured properly, you can use the life expectancy of the oldest beneficiary for determining how quickly distributions must be taken. Since IRAs and retirement plans are tax-free (if Roth) or tax-deferred vehicles, there is a benefit to retaining the assets and delaying distributions as long as possible. (As this was a presentation to NAELA, I focused on Special Needs Trusts as the beneficiary of retirement plan assets.)
The second presentation I gave looked at select income and estate tax issues concerning trusts. For examined the difference between the rules for estate tax inclusion and the grantor trust (income tax) rules. I discussed how a trust’s inclusion in the grantor’s taxable estate for estate tax purposes does not mean it will be income taxed to the grantor, or vice versa. I examined the most commonly used trusts in Medicaid planning and how they might be tweaked to get the desired income and estate tax results. I also looked at some intricacies of the basis rules, which one might overlook easily. For example, for loss purposes, the basis of appreciated property received by gift is not the donor’s basis. In such a case, the basis is the lower of the donor’s basis or the fair market value at the time of the gift.
I want to thank the South Carolina NAELA members for such warm Southern hospitality!
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
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