*Special Tax Briefing

* International Boutique Trusts and Estates firm specializing in sophisticated multigenerational asset transfers.

* Recognized both nationally by Martindale Hubbell as AV preeminent

* STEP Boutique firm of the year

*Who we are…

*Agenda

1. The increased Federal exemption has created a new paradigm in estate planning. Why must equal emphasis now be given to capital gains tax planning?

2. What are the opportunities to achieve a step up in basis after planning is complete?

3. What are the consequences and income tax benefits of planning testamentary trusts for the benefit of the surviving spouse as grantor trusts?

4. Can Joint Exempt Step-up Trusts (JEST) be used to ensure a full step up in basis for jointly owned property first?

5. Gifting “gap-QTIP” (or Qualified Terminable Interest Property) interest income – how can unused exemption amounts be uniquely leveraged? Why sprinkle distributions among other beneficiaries?

6. Hot Topics in Life Insurance

*Income Tax Focus

*Many clients have greatly appreciated stock, and the gains tax if sold in the trust can be a significant amount. With the higher exemption amount, it might make sense to leave low basis assets in one’s estate to achieve step up.

Estate planning has become inextricably intertwined with income tax planning.

Income tax planning can minimize current income taxes and maximize basis step up upon death.

Step up in income tax basis in many instances will have a greater tax benefit than state estate tax savings.

Swapping into the trust high basis assets or cash for low basis assets can help to achieve the desired step up in basis at the grantor’s death.

The trust could also hold a note for assets moved back into the grantor’s estate to achieve the same step up in basis.

*Step Up in Basis

*J.E.S.T.

This allows a full step up in basis of all assets in the trust (as opposed to the 50% in normal cases).

A JEST is used in non-community property states. A husband, for example, could create the trust and reserve the power to amend, revoke, or terminate it. The wife could be the beneficiary of the trust, and all trust property is paid to her estate upon death.

There have been two recent private letter rulings in favor of this strategy, but it is in its nascent stages.

*Turn on Grantor Trust Status

*A trust jumps to the highest levels of taxation for gains and income tax at much lower thresholds than for individuals.

*A grantor trust can be set up to potentially pay lower rates of taxation with a trust established for a surviving spouse for which distributions are not mandatory. The income earned on the trust will be picked up on the surviving spouse’s personal filing.

*Gap QTIP

* For the amount of the gap between the state exemption amount and the federal exemption amount, one should consider the gift of a gap-QTIP trust.

* Income interest for the QTIP should be given to the trust for the children. This will leverage the first spouse’s Deceased Spousal Unused Exclusion (DSUE) and avoid inclusion in the surviving spouse’s estate.

*The surviving spouse should not be named Trustee of the gap QTIP trust but can use the principal, since only the owner of the income interest is considered owner for the IRS purposes.

*The exercise by the spouse of a general power of appointment will accomplish the same tax results.

* Swapping trust assets

* Purchase contracts between trusts for interpolated reserve value

* Providing for heirs not in family business

* 2% owner to Christofani Beneficiaries

*Hot Topics in Insurance Agenda

*Hot Topics Cont…

*Avoid a “fire sale”

*Maintain illiquid assets

*Facilitate business succession plan

*“Key man” policy, cross purchase agreements, etc.

*Gifts to those not beneficiaries of the estate at large

*Divorce obligations, alimony or support

*Insurance for those already with an Estate

Plan

*No step up for gifted assets

*Insurance to cover gains taxes due

*Insurance employed as a hedge against mortality risk (GRATs, QPRTs, installment sales)

*Life Insurance Trusts

*Move additional cash estate and capital gains tax free to heirs

*Spousal Access if serving for income replacement

*Asset protection for estranged spouses, law suits, creditors, etc.

*Borrowing rights

*Decanting

FBAR, International Inheritances, Non-Citizen Spouses, Foreign Trusts and more

*International Planning

*Non-Citizen Spouse

*QDOT Trusts

*Unlimited Marital Deductions

*Annuities and Retirement Plans

*Administration of QDOT distribution issues

*Complications if assets exceed $2MM

*Gifting limits to non-citizen spouse

*Covered Expat Gifts/Inheritances

*Who is a “covered expatriate?”

*Taxed at the highest rate (40%)

*Tax paid by recipient not individual making the gift or bequest

*Much more confiscatory estate tax exemptions

*Use the gift tax exemption

*FBAR Issues

*June 30th is deadline

*Threshold $10,000 total in all international bank accounts

*Form 8938

*Debate over International Real Estate

Reporting for International Assets

Inheriting International

Assets*No income tax to US

beneficiary

*Form 3520 for amounts over $100,000

*Penalties are significant and can include jail time

Foreign Insurance Trust

*Subject to tax on US source income as if trust was a non-resident

*All current income distributed to US beneficiaries

*Throwback tax

* Insurance used as an Accumulation vehicle

*International Issues Cont…

*New Tax Rates in New York

For decedents on or after...

And before... The exclusion amount will be...

1-Apr-14 1-Apr-15 $2,062,500

1-Apr-15 1-Apr-16 $3,125,000

1-Apr-16 1-Apr-17 $4,187,500

1-Apr-17 Jan. 1, 2019 $5,250,000

Jan. 1, 2019 Scheduled to equal the federal estate tax exemption

*Questions