Flexible trusts and estates for uncertain times / Jerold I. Horn.
2010
KF730 .H67 2010 (Map It)
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Details
Author
Title
Flexible trusts and estates for uncertain times / Jerold I. Horn.
Published
Philadelphia, Pa. : ALI ABA, [2010]
Copyright
©2010
Call Number
KF730 .H67 2010
Edition
Fourth edition.
ISBN
9780831899790
0831899794
0831899794
Description
xxxiii, 402, 265 pages : forms ; 24 cm
System Control No.
(OCoLC)674829391
Bibliography, etc. Note
Includes bibliographical references and index.
Record Appears in
Gift
Purchased from the income of the Edith L. Fisch Fund
Added Corporate Author
Gift
The Arthur W. Diamond Law Library
Purchased from the income of the Edith L. Fisch Fund
Table of Contents
Preface
vii
Foreword
ix
ch. 1
Introduction
1
1.01.
Objectives
2
(a).
Enjoyment
2
(b).
Management
2
(c).
Protection Against Creditors
2
(d).
Tax Efficiency
2
(e).
Control
3
(f).
Investment Strategy
3
(g).
Principal-Income Model
3
(h).
Annuity Trust And Unitrust Models
4
(i).
Trust Models
4
1.02.
Illustrations of Drafting To Approach Benefits (But Not Burdens) Of Outright Ownership
6
ch. 2
The Chief Uncertainties
7
2.01.
Overview of Rules
7
2.02.
Method Of Analysis
7
2.03.
Meaning Of Sunset Provision
8
(a).
Effect Upon Exempt Property
8
(b).
Effect Upon Nonexempt Property
9
(c).
Is Property Transferred During Repeal "Exempt" "NoneExempt"?
9
(d).
Adjustments At Sunset To Pre-Sunset Trusts That Consist of (i) Unallocated GST Exemption or (ii) All Property of Which Settlor Is Contributor
12
2.04.
Continuation Of By-Pass-Trust Sheltering During, And After, Repeal
13
(a).
Risk Of Restoration Of Taxes
13
(b).
Risk of Retention In Trust
13
(c).
The View Of The Writer
14
(d).
Drafting For Shelter
15
(e).
Hedging Against Repeal Of Sunset And Restoration of Taxes
16
2.05.
Drafting for Instability
16
(a).
Implications For Pecuniary Gifts and Fractional Shares
16
2.06.
Drafting For Retroactive Restoration
16
(a).
Rules of Construction
17
Form 2.1
Construction
17
(b).
Drafting And Purpose: Connection Between Dispositions and Retroactive Application of Estate Tax and Generation-Skipping Tax
17
(c).
Drafting and Purpose: Deadline for Determination of Retroactive Application
21
ch. 3
The Building Blocks for Payments to Beneficiaries
23
Subchapter A: Primary Beneficiaries
23
3A.01.
Mandatory Payments
23
(a).
Accumulation of Income
23
Form 3.1
Income
23
(1).
Taxation of Ordinary Income
23
(b).
Distribution of Income
23
(1).
Examples
23
Form 3.2
Single Distributee
23
Form 3.3
Plural Distributees
23
(2).
Taxation of Ordinary Income
23
(3).
Taxation of Corpus Income
24
(c).
Distribution of Principal
24
(1).
Fixed Number of Dollars
24
Form 3.4
Pecuniary Gift
24
(A).
Income Tax Results
24
(B).
Drafting
24
(2).
Fixed Fraction of Residue
25
Form 3.5
Remainder of Trust Estate
25
(A).
Drafting
25
(3).
Formula-Determined Gifts
26
(A).
Exemption-Shelter Gift
26
Form 3.6
Exemption Legacy
26
(i).
Purpose
26
(ii).
Drafting
26
(B).
Marital-Deduction Gift
27
Form 3.7
Marital Gift
27
(i).
Purpose
27
(ii).
Drafting
27
(C).
Income Tax Results
27
3A.02.
Discretionary Distributions: Independent Trustee Possesses Discretion
28
(a).
Examples
28
Form 3.8
Single Distributee
28
Form 3.9
Plural Distributees
28
(b).
Taxation of Ordinary Income
28
(c).
Taxation of Corpus Income
28
(d).
Drafting
28
Form 3.10
Optional Limitation: Statement of Purpose Concerning Discretion
29
Form 3.11
Optional Limitation: Precatory Preference For specified Person(s)
30
Form 3.12
Optional Limitation: Treatment of Distribution As Advancements
30
(e).
Special Drafting for Avoidance of Claims of Creditors
31
(f).
Special Drafting for Disabled Beneficiaries
31
(g).
Marital-Deduction Planning When Spouse is Disabled or Insolvent
31
(h).
Use of Discretionary Trusts to Avoid Gift Tax
31
3A.03.
Discretionary Distributions: Nonindependent Trustee Possesses Discretion
32
(a).
Examples
32
Form 3.13
Single Distributee
32
Form 3.14
Plural Distributees
32
(b).
Tax Problems
32
(c).
Solutions
32
(1).
Preventing (i) Ownership (for Tax Purposes) Because of Powers to Pay To Self and (ii) Gifts Because of Powers to Pay to Others
32
(2).
Preventing Ownership Because of Powers to Discharge Legal Obligations by Payment to Other than Power Holder
34
(A).
Examples
34
Form 3.15
Removal of Discretion
34
Form 3.16
Prohibition of Payment
34
(B).
Purpose
34
(C).
Drafting
35
(3).
Drafting of Ascertainable Standards
35
(d).
Relationship Between Ascertainable Standards and Rights of Creditors
38
3A.04.
Discretionary Distributions: Combination of (i) Nonindependent Trustee Possesses Some Discretion and (ii) Independent Trustee Possesses Other Discretion
41
(a).
Examples
41
Form 3.17
Single Distributee
42
Form 3.18
Plural Distributees
42
(b).
Purpose
42
(c).
Drafting
42
(1).
Single Distributee
43
(A).
First Configuration
43
(i).
Facts
43
(ii).
Examples
43
(iii).
Comment
44
(B).
Second Configuration
44
(i).
Facts
44
(ii).
Examples
44
(C).
Third Configuration
44
(D).
Fourth Configuration
44
(2).
Plural Distributees
45
(A).
Fifth Configuration
45
(i).
Facts
45
(ii).
Examples
45
(iii).
Comment
45
(B).
Sixth Configuration
45
(C).
Seventh Configuration
45
(ii).
Comment
45
(3).
Eighth Configuration
46
(A).
Facts
46
(B).
Comment
46
(d).
Special Drafting For Disabled Beneficiaries and Avoidance of claims of Creditors
46
Form 3.19
Distributions
46
Form 3.20
Distributions
47
3A.05.
Discretionary Distributions: Primary Beneficiary Possesses Nonfiduciary Discretion (Right To Withdraw): Five-And-Five Power
48
(a).
Example
48
Form 3.21
Right to Withdraw Greater of $5000 and 5%
48
(b).
Transfer Tax Implications And Planning
48
(c).
Income Tax Implications and Planning
49
3A.06.
Changes Because of Prudent Investor Rule and Modern-Portfolio Theory
49
(a).
Prudent Person Rule
49
(b).
Prudent Investor Rule
50
(c).
Scope
51
(d).
Reasons for the Rule
51
(1).
Deficiencies of Pre-existing Law
51
(2).
Evidence of Dissatisfaction
51
(e).
Accommodation of Modern-Portfolio Theory
52
(1).
First Principle of the Theory: Risks of Shortfall
52
(A).
Two Risks of Shortfall
52
(B).
Market Risk
53
(C).
Nonmarket Risk
54
(D).
Prime Duty
54
(2).
Second Principle of the Theory: Ability to Outperform the Market
55
(f).
Trusts That are Designed for Diminished Distinction Between Income And Principal
55
(1).
General Principles
55
Form 3.22
Income and Principal
56
Form 3.23
Income and Principal
56
Form 3.24
Income and Principal
56
Form 3.25
Income and Principal
57
(2).
Facilitating the Change
57
Form 3.26
Property That is Underproductive of Income
57
Form 3.27
Unproductive Property Shall Not Be Held for More than a Reasonable Time
57
3A.07.
Modern Styles of Distributions: Annuity Trusts and Unitrusts
58
Form 3.28
Annuity Trust Example
58
Form 3.29
Conventional Unitrust Example
58
(a).
Rationales and characteristics
58
(b).
Mandated-Percentage Unitrusts
60
Form 3.30
Unitrust Interest
60
(1).
Rationale and Characteristics
61
3A.08.
Modern-Style Discretionary Distributions: Primary Beneficiary Possesses Nonfiduciary Discretion: Withdrawable-Percentage ("Give-Me-Five") Unitrusts
62
Form 3.31
Withdrawable-Percentage ("Give-Me-Five")Unitrust Example
62
(a).
Rationale And Characteristics
63
(1).
First And Second Versions
63
(2).
Advantages
64
(3).
Exercise Of the Power
65
(4).
Relationship Between Give-Me-Five Power and Rights of Creditors
67
(A).
Vulnerability to Creditors
67
(B).
Implications for Code Sections 2041(b)(2) and 2514(e)
69
(C).
Conclusion
71
(5).
A Problem
72
(6).
Transfer Tax Implications and Planning
72
(7).
Income Tax Implications and Planning
73
(8).
Interface Between Income Tax and Transfer Tax Implications, and Planing For It
77
(9).
Conclusion
78
3A.09.
Unitrusts and Annuity Trusts, Trust-Accounting Income and Principal, "Ordering" Rules and Code Section 643 Regulations
79
Subchapter B: Other Beneficiaries: Discretionary Distributions: Nonindependent Person Possesses Nonfiduciary Discretion (Powers of Appointment)
84
3B.01.
During Life of Power Holder
84
(a).
Nongeneral Power of Appointment
84
Form 3.32
Nongeneral Power of Appoinment
84
(1).
Effects of Possession and Exercise
85
(2).
Preventing General Power of Appointment Because of Power Holder's Powers To Pay to Other Than Self
85
(3).
Value Of Gift That Results From Exercise of Nongeneral Power Of Appointment
85
(b).
Power to Withdraw Entire trust Estate If Power Holder Survives One or More Others
86
Form 3.33
Power to Withdraw If Power Holder Survives One or More Others
86
1.
Rationale
86
2.
Applicability
86
c.
Limited Right To Withdraw From QTIP
86
Form 3.34
Limited Right To Withdraw
86
1.
Purpose
87
2.
Income Tax Results
87
d.
Right to Withdraw Versus Mandatory Distribution
87
1.
Examples
87
Form 3.35
Marital-Deduction Trust
87
Form 3.36
Trust For Descendant
87
2.
Purpose
88
3B.02.
After Death Of Power Holder: Nongeneral Power of Appointment Exercisable By Will
88
Form 3.37
Disposition on Death Of Wife
88
a.
Estate and Gift Tax Effects
88
b.
Additional Protection Against General Power Of Appointment
88
3B.03.
General Power of Appointment Exercisable By Will To Attract Estate Tax and Avoid Generation-Skipping Tax
89
a.
According to Mandate
89
b.
According To Formula That Permits Donee To Determine Outcome
89
c.
According to Discretion Of Independent Trustee
91
Form 3.38
According to Discretion Of Independent Trustee
91
1.
Portion One-Portion Two System
97
2.
Effect Of Severances Upon Placement Of Rights to Withdraw: Qualified Severance and Inclusion In Gross Estate Of Settlor According To Code Sections 2036(a)(2) And 2038(a)(1)
97
3.
Purpose and Method Of Discretion To Grant GPOA
98
4.
One-Part Versus Two-Part Portion In Which GPOA Can Exist
98
5.
Models For Common Situations
99
6.
One-Part Portion In Which GPOA Can Exist: Should A GPOA Exist Unless Revoked, Or Should A GPOA Not Exist Unless Affirmatively Granted?
100
7.
One-Part Portion In Which GPOA Can Exist: Scope
101
8.
Risk Of Inclusion In Gross Estate of Settlor According To Code Sections 2036 (a)(2) and 2038(a)(1)
102
9.
Limit Deemed Existence
103
10.
Prevent Manipulation
103
11.
Qualified Severances
104
12.
Exclude From Appointive Portion Any Property That Otherwise Is Includable In Gross Estate
107
13.
Separate Trusts Of Different Transferors
108
14.
Two-Part Portion In Which GPOA Can Exist: Scope
108
15.
Two-Part Portion In Which GPOA Can Exist: Tandem Use With (i) One Or More Other Two-Part Appointive Portions or (ii) One Or More One-Part Appointive Portions
109
16.
Reimbursement Of Marginal Tax
110
d.
Conclusion
110
ch. 4
Sheltering Of Exemptions: Methods, Amounts And Adjustments
111
4.01.
Ownership And Payment Arrangements
111
a.
Transfer Tax
111
b.
Income Tax
112
c.
The Reluctant Donor
112
1.
Inter Vivos QTIP Trust
112
2.
Intraspousal Agreement
113
4.02.
Why Shelter Rather Than Deduct?
113
4.03.
All Or Nothing At All
114
4.04.
A More Measured Approach
114
4.05.
The Various Credits
117
a.
Applicable Or Unified Credit
117
b.
Credit For State-Death Tax
117
c.
Credit For Tax On Prior Transfers
117
d.
Other Credits
118
e.
Deductions
118
4.06.
Why Pay Rather Than Defer?
118
4.07.
Preserving The Choices
119
4.08.
Protecting Includable Transfers Against Short Survival
120
a.
Planning For Wealthier Spouse
121
1.
Examples
121
Form 4.1
Formula-Marital-Deduction-Credit-Shelter Arrangement
121
Form 4.2
Simple Will
121
2.
Drafting
122
b.
Planning For Less Wealthy Spouse
123
1.
Examples
123
Form 4.3
Formula-Marital-Deduction-Credit-Shelter Arrangement
123
Form 4.4
Simple Will
123
2.
Drafting
123
4.09.
Receptacles For Spousal Disclaimers
123
a.
Special "Disclaimer" Trust
124
Form 4.5
Certain Disclaimers
124
1.
Purpose And Drafting
125
b.
Existing Trust
125
c.
Existing Trust, With Modifications
125
d.
Special "Disclaimer" Trust, Created By Reference To Existing Trust
126
e.
Original Trust
126
4.10.
Enhancing The Use Of Spousal Disclaimers That Salvage Exemptions But Do Not Forgo Enjoyment
126
a.
Outright To Spouse By Joint Tenancy, Beneficiary Designation Or Bequest But, If Spouse Disclaims, In Sheltered Disposition For Primary Benefit Of Spouse
126
Form 4.6
Certain Disclaimers
126
1.
Purpose And Drafting
127
b.
Gift Of Interest In IRA Or Qualified Plan Outright To Spouse But, If Spouse Disclaims, In Sheltered Disposition For Primary Benefit Of Spouse
130
Form 4.7
Gift Of Interest To Spouse
130
1.
Purpose
130
c.
Effect Of Disclaimer Upon Sizes Of Marital And Credit-Shelter Dispositions
130
Form 4.8
Effect Of Disclaimer
130
1.
Purpose
131
d.
Effect Of Disclaimer Upon Size And Inclusion Ratio Of GST-Exemption Disposition
132
1.
Examples
132
Form 4.9
Disclaimer Trusts
132
2.
Purpose
133
3.
Drafting
133
4.11.
Qualified Terminable Interest Property
136
a.
Partial Elections
136
Form 4.10
Partial Elections
136
1.
Exception
136
2.
Allocation Of Charges; Severance Of Portions
136
b.
Alternative Means Of "Fine-tuning" The Election
137
c.
Using "Clayton QTIPS" To Defer Decoupled State Death Taxes
137
1.
"Clayton QTIP"
138
Form 4.11
Remainder Marital Trust
138
ch. 5
Increase Of Basis During Repeal
141
5.01.
Code Section 1022(b) Increase
141
5.02.
Code Section 1022(c) Increase
141
5.03.
Shades Of Marital Deduction?
141
5.04.
Questionable Policy
141
5.05.
Draft For Code Section 1022
141
5.06.
Code Section 1022(b) Is Preferable To Code Section 1022(c)
142
5.07.
Drafting For Bases Increases
142
a.
Do Not Use Pecuniary Gift
142
b.
Tend Not To Use Fractional-Share Gift
143
Form 5.1
143
c.
Specific Gift of Appreciated Assets
143
Form 5.2
143
Form 5.3
143
d.
Minimum-Worth Gift
144
Form 5.4
144
Form 5.5
145
ch. 6
Configurations
147
6.01.
Arrangements For Present Benefit Of More Than One Person
147
a.
General Characteristics
147
b.
"Pot" Trust Until Youngest Beneficiary Attains Certain Age
147
Form 6.1
"Pot" Trust
147
1.
Purposes And Drafting
147
c.
Single Trust For All Descendants, And Optionally Spouse, Of Testator
148
Form 6.2
Family Trust
148
1.
Purposes And Problems
149
d.
Separate Trusts, For Descendants, Per Stirpes, And Their Descendants
149
Form 6.3
Family Trust
149
1.
Purposes And Problems
151
6.02.
Arrangements For Present Benefit Of One Person
152
a.
Examples
152
Form 6.4
Division Into Shares
152
Form 6.5
Outright Dispositions
152
1.
Purposes And Problems
152
b.
Separate Trust For Particular Descendant Until Stated Age(s) Or For Life
152
Form 6.6
Separate Trust
152
1.
Drafting
153
c.
Testamentary Power Of Appointment Of Predeceased Child
154
Form 6.7
Testamentary Power Of Appointment
154
1.
Drafting
155
6.03.
Discretion To Create New Trust(s) From Existing Trust(s)
155
Form 6.8
Creation Of Separate Trusts
155
a.
Purpose And Drafting
156
ch. 7
Allocation Of Death Costs
157
7.01.
Executor Shall Pay Or Direct Trustee To Pay, Subject To Specified Reimbursement And Apportionment
157
Form 7.1
Charges And Taxes
157
a.
Purpose And Drafting
159
7.02.
Trustee Of Revocable Trust Shall Pay To Extent That Executor Directs
160
Form 7.2
Charges And Taxes
160
a.
Purpose And Drafting
161
7.03.
Exoneration Of GST-Exempt Property
161
Form 7.3
Tax Due To Death Of Wife
161
a.
Purpose
162
ch. 8
Special Dispositive Provisions
163
8.01.
Discountable Interests
163
a.
First Scenario
163
b.
Second Scenario
164
1.
The Objective
165
2.
Implications Of Chenoweth
166
3.
Avoidance Of Phantom Transfers
168
4.
Effect Of Fiduciary Discretion To Allocate Assets To Dispositions
168
5.
Techniques To Remove Control Premiums
168
A.
Combined Use Of Lifetime And Deathtime Transfers
169
B.
Deathtime Transfers Only
169
6.
Summary Of Second-Scenario Strategies
171
C.
Third Scenario
172
d.
Fourth Scenario
175
e.
Implementation Of Deathtime Planning
175
1.
Death Costs
175
A.
Will Of Settlor
175
B.
Revocable Trust Of Settlor
175
2.
Specific-Asset-QTIPs And Residuary-QTIP System
176
Form 8.1
Specific-Asset-QTIPs And Residuary-QTIP System
176
3.
Special-Interest-QTIPs, Control-Interest-QTIPs And Residuary-QTIP System
184
Form 8.2
Special-Interests-QTIPs, Control-Interest-QTIPs And Residuary-QTIP System
184
f.
Purpose And Drafting
197
1.
Discounted Interests And Objective Number One
197
2.
NonDiscounted Interests And Objective Number Two
198
3.
Summary Of Results
198
4.
Flexibility To Pay Tax: Objective Number Three
199
5.
Uncertain Law
199
6.
Tensions
200
7.
Single Asset-Single Trust
201
8.
Reduction Of Costs
201
8.02.
Allocations And Advancements
202
a.
Option To Acquire Property
202
Form 8.3
Purchase Rights
202
b.
Special Allocations
203
Form 8.4
Mandatory
203
Form 8.5
Precatory
204
1.
Discretionary
204
Form 8.6
Discretionary
204
A.
Purpose
205
Form 8.7
Charge
205
c.
Advancements
206
Form 8.8
Lifetime Transfers as Advancements Against Deathtime Shares
206
Form 8.9
Equalization by Pecuniary Gift
207
Form 8.10
Deathtime Transfers as Advancements Against Other Deathtime Transfers
207
8.03.
Gifts During Incapacity
207
a.
Purpose and Drafting
209
8.04.
Severance Into GST Exempt, GST Nonexempt and Other Portions
211
Form 8.12
Severance
211
a.
Purpose
211
b.
Problem and Drafting
212
c.
Unallocated GST Exemption
212
Form 8.13
Unallocated GST Exemption
212
1.
Purpose
213
8.05.
Availability of A Qualified Severance (i) If The Severance Changes Beneficial Interests or Otherwise Coincides with Changes In Beneficial Interests and (ii) If Remainder Dispositions Are Outright
213
a.
Issues
216
b.
Analysis
216
1.
Simultaneous Severance and Change
218
2.
Alteration of Sequence
225
3.
Severance Before Change
226
4.
Change Before Severance
229
5.
A Disquieting Example
229
6.
Remainder Dispositions Outright
230
c.
Conclusion
230
d.
Drafting
230
Form 8.14
Direction of Qualified Severance
230
Form 8.15
Notice of Qualified Severance
231
1.
Grant of General Power of Appointment
232
2.
Allocation of Assets Between Exempt and Nonexempt Portions
232
Form 8.16
Allocation of Assets Between Exempt and Nonexempt Portions
232
A.
Purpose
234
8.06.
Tax Elections and Beneficial Interests
234
8.07.
Irrevocable Insurance Trusts
235
a.
Payment of Death Costs
235
Form 8.17
Taxes
235
1.
Purpose
236
b.
Marital-Deduction Disposition
236
Form 8.18
Marital Trust
236
1.
Purpose
237
c.
"Crummey" Powers For Trust That Has None
237
Form 8.19
Distributions
237
d.
Deferral of Division
237
8.08.
Tangible Personal Propety
238
a.
Gifts to a Class
238
Form 8.20
Tangible Personal Property
238
1.
Purpose and Drafting
238
b.
Disposition by Memorandum
238
Form 8.21
Tangible Personal Property
238
8.09.
Residences
238
a.
Outright Gift
238
Form 8.22
Real Gift
238
1.
Drafting
239
2.
Income Tax Results
239
b.
Retention in Trust
239
Form 8.23
Residence
239
1.
Purpose and Drafting
240
A.
Accommodation of Residence In (i) Pay-All-Income Trust, (ii) Discretionary Trust, (iii) Ascertainable Standard Trust and (iv) Give-Me-Five Unitrust
240
B.
Rental Value as Income
241
C.
Marital Deduction
241
D.
Effect Upon Mortgage Debt
241
8.10.
Insurance on Life of Donee
242
Form 8.24
Insurance
242
a.
Purpose
242
8.11.
Pour-Overs: "Back-Up" Systems
242
Form 8.25
Residuary Estate
242
a.
Purpose and Drafting
242
8.12.
"Savings" Clauses
242
Form 8.26
Marital Deduction and 1022(c) Basis Improvement
242
Form 8.27
Code Section 2503(c) Trust
243
Form 8.28
Charitable Trust
243
8.13.
Power of Trustee to Reform or Amend
243
Form 8.29
General
243
Form 8.30
Charitable Remainder Trust
243
Form 8.31
Wholly Charitable Trust
244
8.14.
Sources of Deductible and Nondeductible Gifts
244
Form 8.32
Funding Gifts
244
a.
Purpose
244
8.15.
Powers of Appointment That Increase Flexibility But Preclude Diversion
244
Form 8.33
Flexible Provision For Stepchildren
244
a.
Purpose and Drafting
245
8.16.
Authority For Fiduciaries To Receive Compensation
245
Form 8.34
Compensation
245
a.
Purpose
245
8.17.
Distributions To Present Spouse
245
a.
Examples
245
Form 8.35
Alternative 1
245
Form 8.36
Alternative 2
245
b.
Purpose
246
8.18.
"Pour-Back," From Revocable Trust to Probate Estate
246
Form 8.37
"Pour Back" From Revocable Trust to Probate Estate
246
8.19.
Direct Distribution to Beneficiary Rather Than Through Trust
246
Form 8.38
Direct Distribution to Beneficiary
246
8.20.
Release of Powers
246
Form 8.39
Release of Power
247
8.21.
Consolidation of Trusts
247
Form 8.40
Consolidation
247
a.
Purpose
247
8.22.
Accumulated Income
247
Form 8.41
Accumulated Income
247
ch. 9
Avoiding and Attracting Grantor-Trust Treatment
249
Subchapter A: Excluding Income From Gross Income of Grantor
250
9A.01.
Methodology
250
9A.02.
Specimen Trusts
250
a.
Code Section 2503(c) Trusts
250
b.
Code Section 2642(c) Trusts
250
c.
Trust, With Crummey Powers, For One Non-Skip Person
251
d.
Trust, Without Crummey Powers, For One Person
251
9A.03.
Specimen Powers and Interests
252
a.
Powers and Interests That Can Transfer Trust Estate To Grantor or Spouse of Grantor
252
b.
Powers and Interests That Cannot Transfer Trust Estate To, But Can Divert Trust Estate From, Grantor and Spouse of Grantor
252
9A.04.
Distributions To Grantor and Spouse of Grantor: Code Sections 673, 676 and 677
253
a.
Enjoyment Contingent Upon Prior Death(s): A Framework For Application of Code Sections 673, 676 and 677
254
1.
Effects of Powers and Interests At (1),(2),(3),(12),(13) and (14) of 9A.03(b)
262
2.
Effects of Other Powers and Interests At 9A.03(b)
267
b.
Remainder Interests Described At (i) and (ii)
268
c.
Remainder Interests Described At (iii)
269
d.
Inter Vivos Nongeneral Power Described At (iv)
270
e.
Inter Vivos General Power Described At (v)
271
f.
Testamentary Nongeneral Power Described At (vi); Testamentary General Power Described At (vii)
271
g.
Ordering of Powers and Interests
276
h.
Remainders To Avoid
276
9A.05.
Powers To Affect Enjoyment: Code Section 674
277
a.
Powers and Interests Described At (i), (ii), (iii), (iv), (v), (vii), 1, 2, 3, 4, 5, (15) and (16): Powers and Interests Not Described in Code Section 674(a)
279
b.
Power Described At 6: Exceptions at Code Section 674(b)(6) and (7) To Code Section 674(a)
279
c.
Powers Described At (iv), (v), (vi) and (vii): Exception To Exceptions At Code Sections 674(b)(5), (b)(6), (b)(7), (c) and (d) to Code Section 674(a)
281
d.
Power Described At 7: Exception At Code Section 674(b)(5) To Code Section 674(a)
281
e.
Power Decribed At 8: Exception At Code Section 674(d) To Code Section 674(a)
281
f.
Power Described At 9: Exception At Code Section 674(b)(5) To Code Section 674(a)
282
g.
Powers Described At 10 and 11: Exception At Code Section 674(c) To Code Section 674(a)
282
h.
Power Described At (vi): Exception At Code Section 674(b)(3) To Code Section 674(a)
282
9A.06.
Power To Withdraw: Code Section 678
283
9A.07.
Conclusions With Respect To Specimen Powers and Interests
283
9A.08.
Conclusions With Respect To Specimen Trusts
285
Subchapter B: Powers and Interests That Cause Inclusion in Gross Income But Not In Gross Estate
286
9B.01.
Spousal "Remainders"
287
9B.02.
Powers in Gross
288
9B.03.
Testamentary Powers That Do Not Create Any Reversion or Spousal Remainder
289
9B.04.
Powers To Add Beneficiaries
289
9B.05.
Broad Powers of Related or Subordinate Trustees
290
9B.06.
"Safe" Powers of Spouse of Grantor As Trustee
290
9B.07.
Power To Borrow Without Adequate Interest or Security
291
Form 9.1
Power To Borrow Without Adequate Security
292
a.
Purpose and Drafting
293
9B.08.
Power To Reacquire Assets
293
Form 9.2
Power of Substitution
295
a.
Purpose and Drafting
296
9B.09.
Conclusion
297
ch. 10
Accommodation of Special Assets
299
Subchapter A: Code Sections 2032A and 2057
299
10A.01.
The Issue
299
10A.02.
Problems and Solutions
299
Form 10.1
Code Sections 2032A and 2057
299
a.
First Problem
300
b.
Possible Solution
301
c.
Second Problem
301
d.
Possible Solution
301
e.
Third Problem
301
f.
Drafting
301
Subchapter B: S Corporation Stock
302
10B.01.
The Trust
302
Form 10.2
Remainder Special Assets Trust
302
a.
Purpose
303
10B.02.
"Stub" Income
303
Form 10.3
Accrued Income; Undistributed Income
303
a.
Purpose
304
Subchapter C: Interests in Qualified Plans and IRAs
304
10C.01.
Trusts As Beneficiaries of Qualified Plans and IRAs
305
a.
Generic Provision
306
Form 10.4
IRAs and Qualified Plans
306
1.
Purpose
310
b.
"Conduit" Treatment
312
Form 10.5
IRAs and Qualified Plans
312
1.
Purpose
314
10C.02.
Disposition of Any Interest That Remains Undistributed When Primary Beneficiary Dies After Owner Dies
314
10C.03.
Allocation of Interests Among Dispositions
315
10C.04.
Payment of Death Costs
321
a.
Of Owner or Participant
321
1.
General
321
2.
In Case of QTIP
322
b.
Of Beneficiary
323
10C.05.
Trusts That Suspend Ownership
323
a.
The Statutory Scheme
323
b.
Same Treatment For Same Situations
324
c.
Policy
326
10C.06.
Avoidance of Certain Beneficiaries, Plans and IRAs
326
a.
Effect of Identity of Beneficiary Upon Method of Distribution
326
b.
Whether Participant Should Transfer Interest In Qualified Plan To IRA, or Should Transfer Interest In IRA To Another IRA, To Avoid Undesirable Method of Distribution
327
10C.07.
Selection of Method of Distribution
328
10C.08.
Overriding Questions
329
a.
Presentation In Common Scenarios
329
b.
Speculating About Answers
330
c.
Possible Solution
331
10C.09.
Marital Deduction
332
Form 10.6
Certain Income
332
a.
Purpose and Drafting
332
ch. 11
Inter Vivos Marital Dispositions
333
11.01.
Qualification For Marital Deduction: Ability of Donor To Control During Life and After Death of Donee
333
11.02.
Inclusion In Gross Estate of Donor: Ability of Donor To Benefit. or To Receive A Power, After Death of Donee
339
11.03.
Illustration of Inter Vivos QTIP
345
Form 11.1
Disposition of Trust Estate
345
a.
Purpose and Drafting
348
ch. 12
Integration of Exempt and Nonexempt Dispositions
353
12.01.
Percentage or Fractional-Share Dispositions
353
Form 12.1
Percentage Disposition
353
a.
Purpose and Drafting
353
12.02.
Pecuniary-Amount Dispositions
354
12.2.
Pecuniary Sum
354
a.
Purpose and Drafting
354
12.03.
Nonprorata Allocations and Distributions To Avoid Generation-Skipping Tax
354
a.
Single Distributee
354
1.
Income Interest
354
Form 12.3
Income
354
a.
Purpose and Drafting
355
2.
Unitrust Interest
355
Form 12.4
Unitrust Interest
355
A.
Purpose and Drafting
356
3.
Rights of Withdrawal (Integration From Outset)
356
Form 12.5
Right To Withdraw
356
A.
Purpose
356
4.
Right of Withdrawal (Integration After Qualified Severance)
356
Form 12.6
Right To Withdraw
356
A.
Purpose
357
5.
Annuity Interest
357
Form 12.7
Annuity Interest
357
A.
Purpose and Drafting
357
6.
Annuity Interest (Integration Additionally Between Spouses)
357
Form 12.8
Annuity Interest
357
A.
Purpose and Drafting
358
b.
Plural Distributees
358
1.
Particularized Style of Integration
358
2.
Generic Style of Integration
359
A.
Generic Provision
360
Form 12.9
Integration
360
B.
Purpose and Drafting
361
ch. 13
Perpetuities and Power-of-Appointment Issues
363
13.01.
Savings Clauses
363
a.
Common-Law Rule
363
Form 13.1
Limitation of Duration
363
1.
Drafting
364
b.
"Elect-Out" Jurisdiction
364
Form 13.2
Limitation of Duration
364
c.
Other Jurisdictions
365
Form 13.3
Limitation of Duration
365
1.
Drafting
365
d.
Savings Clause For Different Periods
366
Form 13.4
Savings Clause
366
1.
Purpose
366
e.
Savings Clause For Appointive Property Subject To General Power To Appoint by Will
366
Form 13.5
Savings Clause
366
1.
Purpose and Drafting
367
13.02.
Separate Receptacles For Appointive Property Subject To Different Periods
367
Form 13.6
Allocation To Portions
367
a.
Purpose
368
13.03.
Contingent Disposition of Appointed Property
369
Form 13.7
Contingent Disposition
369
a.
Purpose
369
13.04.
Application of Delaware Tax Trap To Exercise of Nongeneral Powers of Appointment If Rule Against Perpetuities Is (i) Common Law, (ii) Abolished, (iii) Term of Years or (iv) Elected Not To Apply
369
Form 13.8
Property Subject To Certain Powers of Appointment
369
a.
Purpose
371
b.
Drafting
375
ch. 14
Trust Management
377
Subchapter A: General Limitations
377
14A.01.
Potential Problems
377
14A.02.
Possible Solutions
378
Subchapter B: Selection and Succession of Trustees
379
14B.01.
Power To Resume Office After Resignation
379
Form 14.1
Power To Resume Office
379
a.
Purpose
379
14B.02.
Power To Remove Trustee
379
Form 14.2
Alternative #1
379
Form 14.3
Alternative #2
380
Form 14.4
Alternative #3
380
a.
Problems and Solutions
380
14B.03.
Deferred Naming of Independent Trustee
381
Form 14.5
Alternative #1
381
Form 14.6
Alternative #2
382
a.
Problems and Solutions
383
14B.04.
Different Trustees For Different Trusts
384
Form 14.7
Trustee
384
a.
Problems
384
b.
Purposes
384
14B.05.
Primary Beneficiary Can Serve; Trustee Can Appoint Successor; Trustee In Default of Contrary Designation Consists of Independent Trustee or Successor Beneficiaries
384
Form 14.8
Succession; Selection of Additional Trustee
384
Subchapter C: Allocation of Powers Among Trustees
385
14C.01.
Delegation
385
Form 14.9
Delegation
385
a.
Purpose
385
14C.02.
Addition of Independent Trustee
385
Form 14.10
Number of Trustees
385
a.
Drafting
386
b.
Purpose
386
14C.03.
Allocation To Independent Trustee
387
a.
Always
387
Form 14.11
Always
387
1.
Drafting
387
2.
Purpose
388
b.
If An Independent Trustee Is Added
388
Form 14.12
Independent Trustee Added
388
1.
Purpose
388
14C.04.
Allocation To Nonindependent Trustee
389
Form 14.13
Nonindependent Trustee
389
Form 14.14
Nonindependent Trustee
389
14C.05.
Diversion of "Sensitive" Powers
389
a.
Powers Described In Code Section 2041(b)(1)(A) And Treasury Regulations Section 25.2511-1(g)(2)
390
Form 14.16
Limitations On Powers
390
1.
Purpose
391
14C.06.
"Sensitive" Property
391
Form 14.17
Alternative #1
391
Form 14.18
Alternative #2
391
a.
Problems and Solutions
392
14C.07.
Section 2032A and Section 2057 Property
393
14.19.
Special Valuation Property
393
a.
Purpose
393
Subchapter D: Impact of Prudent Investor Rule
393
14D.01.
Applicability of Prudent Investor Rule
393
a.
Effects of State Law and Governing Instrument
393
b.
Avoidance of Contrary Law for The State
394
1.
State Law Governs
394
Form 14.20
Trust Management
394
c.
Avoidance of Prudent Investor Rule
394
d.
Scope of the Rule
395
14D.02.
Requirement of Skill
395
14D.03.
Duty of Diversification
396
a.
General Principles
396
b.
Comparison of UPIA, Florida, Illinois and Restatement Third Versions
396
c.
Waiver
397
Form 14.21
Waiver of Diversification
397
14D.04.
Duty With Respect To Original Investments
397
a.
General Principles
397
b.
General Authorization To Retain Assets
398
1.
Example
398
2.
Comment
398
c.
General Authorization To Retain Business Interests
399
Form 14.22
Authorization To Retain Business Interests
399
1.
Comment
399
d.
Specific Authorization To Retain Particular Property
399
1.
Examples
399
2.
Comment
399
14D.05.
Delegation of Authority
399
a.
General Principles
399
b.
Allocation of Investment Duties
400
1.
Authority Generally
400
Form 14.23
Adviser Trustee
400
A.
Comment
400
B.
Purposes and Drafting
400
2.
Concerning Retention and management of Particular Investments
401
Form 14.24
Business Property
401
A.
Comment
401
B.
Purpose
401
3.
Reliance Upon Advisers
401
Form 14.25
Delegation To Advisers
401
A.
Purpose
402
4.
Concerning Custody and Bookkeeping
402
Form 14.26
Ministerial And Administrative Duties of Keeping Books and Acting As Custodian of Trust Property
402
ch. 15
Conclusion
403
APPENDIX
I.
Revocable Trusts And Wills
Form #1
Revocable Trust. Settlor is a widower
1
Form #2
Will, Companion To Form 31
29
Form #3
Revocable Trust. settlor is married
37
Form #4
Will. Companion to Form 33
53
Form #5
Revocable Trust. Settlor is married
59
Form #6
Will. Companion to Form #5
83
Form #7
Revocable Trust. Settlor is married
89
Form #8
Will. Companion to Form #7
125
Form #9
Revocable Trust. Settlor is married
133
Form #10
Will. Companion to Form #9
157
II.
Other Revocable Documents
Form #11
Power of Attorney for property management. Principal is married
163
Form #12
Power of attorney for health care. Designed to promote ultimate flexibility
167
Form #13
Beneficiary Designation for Individual retirement account. Owner is married
169
III.
Irrevocable Trusts
Form #14
Irrevocable Trust. Settlor is divorced
171
Form #15
Irrevocable Trust. Settlor is married
185
Form #16
Irrevocable Trust. Settlor is married
207
Form #17
Irrevocable Trust. Code Section 2503(c) Trust
227
Form #18
Irrevocable Trust. Code Section 2642(c) Trust
239
Form #19
Irrevocable Trust. GST-exempt, dynasty-style trust
253
Index of Subjects
1