DOSSIER · EST

Tax-Aware Succession

Trust and transfer-tax structures used to move wealth and businesses to the next generation.

Brief stack

In this dossier

EST-03 · 01

Grantor Trusts: Who Pays the Income Tax, and Why Planners Want That Result

8 MIN · EST

Grantor trust status is a deliberate choice, not an accident. This brief explains which retained powers trigger it, what the tax payment does for the family, and how the structure unwinds.

A grantor trust is ignored for income tax while remaining a completed gift for transfer tax, which is the whole point of the structure.
The grantor pays tax on trust income from personal funds, and the IRS has ruled that payment is not an additional taxable gift to beneficiaries.
Sales and loans between a grantor and a grantor trust are disregarded, so no gain is recognized when assets are swapped or sold for a note.

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EST-04 · 02

Portability of the Estate Tax Exclusion: The Election, the Deadline, and the Late Fix

7 MIN · EST

Portability is not automatic. It is an election made on a federal estate tax return that most families think they do not need to file, and the omission is discovered years too late.

The unused exclusion of a deceased spouse transfers to the survivor only if the executor makes an election on a timely filed Form 706.
The return must be filed even when the estate owes no tax and falls far below the filing threshold, which is where most families go wrong.
A revenue procedure gives estates that were not otherwise required to file a simplified late-election route measured in years, not months.

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EST-05 · 03

Family Limited Partnerships and Valuation Discounts: Where They Hold and Where They Break

7 MIN · EST

A discount on a family entity interest is an appraisal conclusion the government tests against how the entity was actually run. This brief separates the facts that support it from the facts that destroy it.

Discounts rest on two economic facts: a minority holder cannot control the entity, and no ready market exists for the interest.
The main federal attack is IRC section 2036, which pulls transferred assets back into the estate where the transferor kept enjoyment or control.
The statutory escape is a bona fide sale for full consideration, which courts read to require a legitimate and significant non-tax purpose.

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EST-06 · 04

Changing an Irrevocable Trust: Decanting, Reformation, and Beneficiary Consent

7 MIN · EST

Irrevocable does not mean unchangeable. This brief sets out the six routes state law provides for altering a trust, what each one requires, and where the federal tax overlay bites.

Decanting authority comes from state statute, common law, or the trust's own terms; a trustee with no distributive discretion generally cannot decant at all.
The Uniform Trust Decanting Act, adopted in a number of states, ties what a trustee may change to how broad the distribution standard is.
Consent modification and nonjudicial settlement agreements are often faster than court, but they cannot defeat a material purpose of the trust.

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EST-07 · 05

Fiduciary Income Tax: Form 1041, the Distribution Deduction, and Schedule K-1

8 MIN · EST

An estate or trust is a taxpayer with unusually compressed rates. This brief explains how the distribution deduction shifts income to beneficiaries and which elections have to be made on time.

An estate or trust files Form 1041 and is taxed as a separate entity, but reaches the top federal rate at a very low level of retained income.
The distribution deduction moves income out to beneficiaries, who report it on Schedule K-1 with its original character preserved.
Distributable net income caps the deduction and the beneficiaries' inclusion, so income cannot be shifted beyond what the entity actually earned.

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EST-08 · 06

Irrevocable Life Insurance Trusts: Incidents of Ownership, Crummey Rights, and Common Failures

8 MIN · EST

An insurance trust works only if the insured owns nothing and the trustee actually administers it. This brief maps the two statutes that decide the outcome and the housekeeping that fails first.

IRC section 2042 includes policy proceeds in the estate where the insured held any incident of ownership at death, or where proceeds are payable to the estate.
Incidents of ownership include the right to change beneficiaries, surrender, assign, pledge, or borrow against the policy — not just formal title.
Transferring an existing policy starts a three-year lookback; if the insured dies inside it, the proceeds come back into the estate.

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