The Impact of New Federal Tax Laws on Existing Trusts and Estates

It’s Time to Revisit Old Trusts – New Federal Exemptions Could Give Wealthy Families a False Sense of Security

The end of 2017 saw significant changes in federal tax law when President Donald Trump signed the “Tax Cuts and Jobs Act.” The impact of the Act on estate planning could affect those with existing estates and those who might be considering drafting a trust in the future. While many changes will work to benefit estates, there are several things to be aware of and consider.

Changes to Exemption

Before the Tax Cuts and Jobs Act, federal exemptions for wealthy families were capped at 5 million dollars but has now been increased to $11.18 million per person (including inflation). This means that before 2018, married couples could have exemptions up to $23.36 million. Any gifts under these new exemptions can be made tax-free during your life and also upon your death as an inheritance.

Something to consider about the Tax Cuts and Jobs Act is its expiration date. The new regulations will expire at the end of 2025. They are then expected to revert to the previous amount of 5 million per person barring any changes from Congress. While past amounts will be adjusted for inflation, the new model for calculating inflation is expected to change and will yield a lower rate of inflation year-over-year.

However, estates valued at less than $5 million are less impacted by the new regulations.

How Federal Tax Reform Affects State Tax

Estate tax on the state level has remained unchanged. If your state assesses estate taxes, you will still be required to pay those taxes. The state of Nevada has some of the most favorable tax laws in the country and many people establish Nevada trusts to take advantage of them.

If you currently live in a state which assesses high taxes on estates or income produced by your estate, you may want to consider moving your trust to a state with no income tax, no estate tax, and favorable tax laws such as Nevada.

Some great news about exemption limits is the ability to gift more freely until 2025 when the limits expire. It will be easier to gift estate assets without incurring federal gift and estate taxes until that time. The state of Nevada has no gift tax, so staying under the federal cap is your only concern for assets established in Nevada.

Nevada does not have an inheritance tax either, but keep in mind that even if your state does not have an inheritance tax, if you gift assets to someone in a state which does, it’s possible for the beneficiary to get taxed on those assets.

What to Watch Out For

Higher exemptions have caused one big problem that could go undetected: accidental disinheritance. If you have an older trust that was written for a smaller tax exemption and your trust stipulates that the exempt amount of your estate should pass to your children and the rest to your spouse – you may accidentally leave up to $11.2 million to your children and nothing to your spouse depending on the size of your estate.

Learn more about Trust Decanting.

Regardless of estate size, it’s important to review your old trusts to make sure that the terms of that trust still make sense for your current life situation.

Does a Trust Still Make Sense in Light of New Federal Exemptions?

Some people may be compelled to review their old trusts and choose to allow their assets to pass into a “credit shelter” trust. This tactic does pass your income along to your spouse and children. However, families who use such trusts miss out on a huge tax break from stock and real estate assets.

Trusts also help shield assets from federal estate tax even with higher exemptions and allow more control over assets. Another thing to keep in mind as you choose whether or not to create a trust is that the higher exemptions put into place by President Trump will only last until 2025. It may be better to think of them as being artificially high.

Learn More About the Tax-Favored State of Nevada

You don’t have to live in Nevada to take advantage of its favorable tax and trust laws. By establishing your assets in the state and using a Nevada resident trustee, like Alliance Trust Company of Nevada.

There are more benefits than favorable tax law in the state of Nevada. Those who establish trusts in the state can also experience benefits like short seasoning periods, iron-clad asset protection laws, and the ability to develop dynasty trusts that last hundreds of years and more.

Contact Alliance Trust Company of Nevada to learn more about how you can make the most of higher federal exemptions and benefit from fewer state taxes.

Supreme Court to Address State Taxation of Trusts

Why Two State Trust Cases Have Escalated to the SCOTUS and What That Could Mean for Estate Planning

BREAKING NEWS from the Supreme Court in Washington D.C. While much of the estate planning community is at the Heckerling conference in Orlando, the U.S. Supreme Court of the United States (SCOTUS) decided on Friday to grant a writ of certiorari in The Kimberley Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue case.

The Cases Broken Down

The crux of the Kaestner case is whether the state of North Carolina should be able to constitutionally tax trusts where the only connection to the state is that the beneficiary is a resident. In the state of North Carolina, the taxpayer won throughout the entire court system, but the state appealed successfully to the US Supreme Court.

Another similar case, Fielding v. Commissioner of Revenue, is being appealed to the SCOTUS with taxpayer response due on January 21st. The facts of the Fielding case are broader than the Kaestner case, so the outcome is of interest to the greater estate planning community. The Fielding case addresses whether the state can tax a trust where the grantor was a resident of a ate during the creation of the trust, and one beneficiary was a Minnesota resident, but there are no other ties to the state of Minnesota within the trust itself.

Like Kaestner, Fielding won in the Minnesota state courts, and the state appealed to the SCOTUS.

It has been decades since the SCOTUS has addressed the state taxation of trusts. However, there are quite a few cases beyond the Kaestner case with address state trust taxation, including:

  • McCulloch v. Franchise Tax board (Calif, 1964)
  • Taylor v. State Tax Commissioner (N.Y. 1981)
  • Pennoyer v. Taxation Div. Dir. (N.J. 1983)
  • Potter v. Taxation Div. Dir. (N.J. 1983)
  • In re Swift (Mo. 1987)
  • Blue v. Department of Treasury (Mich. 1990)
  • Westfall v. Director of Revenue (Mo. 1991)
  • 1992, Quill Corporation v. North Dakota. (1992)
  • District of Columbia v. Chase Manhattan Bank (1997)
  • Chase Manhattan Bank v. Gavin 1999
  • South Dakota v. Wayfair 2018

Constitutional Issues

Three older U.S. Supreme Court cases all dating before 1947 addressed the constitutional issues with state taxation. Safe Deposit and Trust Company v. Virginia held that the Due Process Clause prohibits a state from taxing a trust based on the residence of beneficiaries.

In Guaranty Trust Co. v. Virginia the court held that Virginia could tax residence beneficiaries on distributions they received from a non-resident trust.

Greenough v. Tax Assessors of Newport held that the Due Process Clause did not prevent the city of Newport from imposing a personal property tax on a resident trustee of an otherwise non-resident trust.

It is probably unconstitutional for a state to tax an otherwise non-resident trust solely because the guarantor was a resident. However, if that state’s court system is utilized, for example, because of a probate proceeding in that state, chances are better than the state does have authority to tax the trust.

The trust industry is keenly following the Kaestner and Fielding cases, and it will be interesting to see whether they are heard together or separately in the SCOTUS, presuming the court will also hear the Fielding case.

Alliance Trust Company is following both cases closely and will provide updates as new developments arise.

Alliance Presentations in San Diego – Recap of the Gathering

Gathering 5

Last month Alliance Trust presented at the Southern California Institute’s annual “Gathering” of elite advisors from around the country in San Diego.  The topics of the two-day seminar included a panel debating the best family trust jurisdictions, and various methods and strategies to minimize and reduce estate, state and federal income taxes.  Advisors discussed asset protection trusts and other Nevada trust options, with case studies on how they work in practice.  As a Nevada Trust Company, Alliance Trust added insight and expertise on these topics from the perspective of a trustee.  Nevada is considered to have the best trust laws in the country, providing families valuable asset protection, flexibility for planning options and tax minimization for generations.  for more information on Nevada Trusts, please call Greg Crawford at Alliance Trust in Reno at 775-297-4684.

Awareness of NING Trusts Growing Nationally

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Nevada Incomplete Non-Grantor Trusts (or, “NINGs”) are growing in popularity and usage across the country.  NINGs provide the grantor of the trust asset protection and the potential to minimize local and state income taxes on investable/intangible assets.  As this NASDAQ.com Article on NINGS, these types of trusts are not for everyone.

However, a family living in a high-income tax state with significant taxable income and appreciated investments (or investments expected to appreciate) can benefit from a NING. This is just one of many Nevada trust planning strategies that makes Nevada the Asset Protection Trust Rankings   If you are interested in learning more about NINGs, please read this Article by attorney Gordon Schaller and call Greg Crawford at Alliance Trust Company in Reno at 775-297-4684.

Why Sand Hill Road Uses Nevada Trust Strategies

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Alliance Trust Company of Nevada spends significant time in Silicon Valley.  Our clients range from early stage Angel investors, the founders of many fast-growing technology firms, and the partners of some of the most prestigious venture capital firms in the world.  Why are so many people connected with Sand Hill Road using Nevada Trust strategies?  In a word: Flexibility.

Nevada offers exclusive options within its trust and estate laws, and you don’t have to be a Nevada resident to establish and benefit from a Nevada Trust for generations to come.

Simply put, Nevada offers flexibility around common asset protection, tax-minimization, and dynasty provisions that have many around the country recommending Nevada as the best state in the country for trusts.  Even Business Week magazine recently took notice, putting Reno on the cover for its trust and estates activity.

Interested in learning more?  Call Greg Crawford, President of Alliance Trust in Reno at 775-297-4684.

Alliance Trust Proud to Participate in Prestigious UCLA Law Panel

UCLA STEP Asset Protection

Gregory E. Crawford, TEP, President of Alliance Trust Company of Nevada recently participated in a 90-minute discussion panel covering the topics of asset protection planning and the impact of the Uniform Voidable Transfer Act (UVTA).  The panel was moderated by Professor Jerry Hesch (ACTEC Fellow), and included nationally-recognized attorneys Jeffery M. Verdon and John R. Garland, as well as Neal Rubin, Managing Director, International Custody & Asset Protection Solutions of City National Rochdale.  Nevada was highlighted by the panel as one of the best jurisdictions in the United States and world for estate planning.  The UCLA Law School STEP Conference is in its fifth year and attracts hundreds of trust and estate professionals from around the world to Newport Beach, CA each January.  For more information, please review the conference details or call Greg Crawford in Reno at 775-297-4684.

Updating an Antiquated Family Trust in Nevada

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Many people are beneficiaries of family trusts that have antiquated terms and provisions that no longer make sense.  Yet many people also believe that they are “stuck” with the terms of the trust and that them simply have to live with the terms regardless moving forward.  This is not true.  Certain states, including Nevada, allow for modifications to be made to even an irrevocable trust.  Modifications can be made to extend the term of the trust, change the situs of the trust, and add or modify powers of appointment.  As this recent Forbes magazine article points out, you might even save taxes for the trust as part of this process.  Nevada is considered to have some of the best trust laws in the country and has very flexible statutes for modifying trusts.  For more information, call Greg Crawford in Reno at 775-297-4684.

Decanting an Irrevocable Trust in Nevada – Modernize an Irrevocable Trust

Many people believe that once a trust becomes irrevocable, that there is nothing you can do to change and fix outdated family trust provisions.  That is not correct.  Certain states,  including Nevada, have “decanting provisions” which allow for modifications of irrevocable trusts by shifting the assets from the old trust and into a new, modernized trust.  The new trust may have stronger asset protection and/or tax advantages.  The process leaves the unwanted trust provisions behind, like leaving sediment behind in decanting wine.  Decanting can be done quickly in Nevada, at a minimal cost.  Alliance Trust Company will be co-presenting a presentation at the Gathering in San Diego at the end of the month.  If you are looking at options to modify an irrevocable trust, you have a lot of options in Nevada you may not have in your home state.  Nevada is consider to have some of the best and most flexible trust laws in the country, and is consider one of the most favorable jurisdictions for decanting.  Please call Greg Crawford in Reno at 775-297-4684 for more information.

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