2016 ADVANCED ESTATE PLANNING SURVEY COURSE May 6, 2016 NC Bar Center Cary, NC. Table of Contents

Transcription

1 2016 ADVANCED ESTATE PLANNING SURVEY COURSE May 6, 2016 NC Bar Center Cary, NC Table of Contents I. PORTABILITY: SIMPLIFICATION OR COMPLICATION? Amy H. Kincaid Greensboro INTRODUCTION... I-1 TRADITIONAL ESTATE PLANNING... I-1 Section I-2 Unlimited Marital Deduction... I-2 Traditional Estate Planning... I-2 Two Principally Used Types of Trusts... I-2 PORTABILITY I-5 Applicable Code and Regulations... I-5 Definitions... I-5 Availability... I-7 Election... I-7 Basics of DSUE... I-10 Opting Out... I-11 Relief for Failure to Make the Election... I-11 Effect on Statute of Limitations... I-12 TRADITIONAL PLANNING v. PORTABILITY... I-13 Advantages of Using a Credit Shelter Trust... I-13 Advantages of Portability... I-16 PLANNING THOUGHTS WHEN A COUPLE HAS ASSETS IN EXCESS OF THE BEA... I-17 Disclaimer Plan... I-17 QTIP Trust Planning... I-18 Portability plus Planned Lifetime Gift(s) by Surviving Spouse... I-21 Portability as a Backup Plan... I-22 CHOICE OF FIDUCIARY... I-24 Family Member as Fiduciary... I-24 Third Party Fiduciary... I-24 Note... I-24 MARITAL AGREEMENTS... I-24 Concept... I-24 Concern... I-25 CLIENTS WITH ASSETS IN STATES WITH A STATE ESTATE TAX... I-25 PLANNING FOR CLIENTS WITH DSUE... I-25 Remarriage Planned/Expected/Occurred... I-25 Remarriage Not Planned/Expected... I-26

2 PERIODIC REVIEWS OF TECHNIQUES IMPLEMENTED PRIOR TO PORTABILITY... I-26 ATTACHMENT... I-29 II. TRUST INCOME TAXATION FOR THE ADVISOR John Goldsbury Charlotte INTRODUCTION...II-1 AN OVERVIEW OF THE MOST IMPORTANT CATEGORIES OF TRUSTS...II-3 Grantor vs. Non-grantor...II-3 Simple vs. Complex...II-9 AN OVERVIEW OF THE FEDERAL INCOME TAX/DNI RULES...II-9 Be Clear on the Term Income...II-9 Distributable Net Income (DNI)...II-10 Simple Trusts...II-11 Complex Trusts...II-12 Capital Gain in DNI...II-13 Distributions in Kind...II day Rule...II % Medicare Surtax How is a Trust Taxed?...II % Surtax How Does a Beneficiary Treat Trust Distributions?...II-17 The Argaona Case...II-17 AN INTRODUCTION TO FIDUCIARY ACCOUNTING INCOME (FAI) THE UPIA AND NC CHAPTER 37A...II-22 Introduction...II-22 When FAI and DNI Collide...II-22 GOOD NEWS; BAD NEWS...II-26 Tax Planning Opportunities Grantor Trusts...II-26 Tax Planning Opportunities Non-grantor Trusts...II-29 Mistakes to Avoid Grantor Trusts...II-30 Mistakes to Avoid Non-grantor Trusts...II-31 APPENDIX...II-33 III. LGBT ESTATE PLANNING AND FAMILY LAW POST OBERGEFELL: NOT SO SIMPLE, NOT SO QUICK Paula A. Kohut and Melissa D. Wright Wilmington MARITAL EQUALITY, MARRIAGES, AND LEGAL NON-MARITAL RELATIONSHIPS... III-1 Marriage Equality... III-1 Understanding a Client s Marital Status... III-1 Retrospective or Prospective Application... III-1 Pro- and Anti-LGBT Legislation... III-2

3 North Carolina House Bill 2... III-2 Employment, Housing and Public Accommodations... III-3 FEDERAL AND STATE TAX RECOGNITION OF MARRIAGES, AND LEGAL NON-MARITAL RELATIONSHIPS... III-4 Federal Tax Recognition of Same-Sex Marriages... III-4 North Carolina Tax Recognition of Same-Sex Marriages... III-5 Non-Marital Legal Relationships: Civil Unions, Domestic Partnerships and Designated Beneficiaries... III-5 Statutory Conversions of Civil Unions and Domestic Partnerships... III-6 SOCIAL SECURITY, SUPPLEMENTAL SECURITY INCOME (SSI) AND MEDICARE... III-6 Social Security... III-6 Supplemental Security Income (SSI)... III-7 Medicare and Transgender Health Care... III-7 SPOUSAL RIGHTS... III-8 Elective Share Rights... III-8 U.S. Department of Labor... III-8 Transgender Spouses... III-8 Tenants by the Entireties... III-8 FAMILY LAW FOR LGBT CLIENTS... III-9 Termination of Adult Adoptions... III-9 Annulment or Divorce... III-9 Prenuptial and Postnuptial Agreements... III-9 Birth Certificates and a Rebuttable Presumption of Parenthood... III-10 Stepparent Adoptions... III-10 Co-parenting Agreements... III-11 Unmarried Parents and Second Parent Adoptions... III-11 ADOPTIONS FOR LGBT FAMILIES... III-11 Chapter 48 Adoption... III-11 Types of Adoptions... III-11 Stepparent Adoptions Process... III-12 Adult Adoptions... III-12 STATUTORY SURROGATES, REGULATORY CHANGES, HEALTH CARE POWERS OF ATTORNEY AND RELATED CONSIDERATIONS... III-14 State and Federal Law Regarding Health Care Agents, Surrogates, Support Persons and Legal Representatives... III-14 Alternative Provisions for Health Care Powers of Attorney, Powers of Attorney and Related Advanced Directives... III-18 Health Care Authorization for Minors and Nominations of Guardians... III-19 APPENDICES... III-23

4 IV. USING LEVERAGED AND FREEZE GIFT TECHNIQUES Jessica Mering Hardin Charlotte OVERVIEW... IV-1 BASIC LEVERAGE AND FREEZE TOOLS... IV-1 Valuation under Internal Revenue Code Section IV-1 Grantor Trusts... IV-3 Valuation Discounts... IV-5 NON-CHARITABLE SPLIT INTEREST GIFTS... IV-8 I.R.C. Section 2702 Special Valuation Rules in Case of Transfers to Trusts... IV-8 Grantor Retained Annuity Trust... IV-9 Qualified Personal Residence Trust... IV-18 FAMILY LIMITED PARTNERSHIPS/LIMITED LIABILITY COMPANIES... IV-26 General Considerations... IV-26 Transfer of Interests... IV-27 Sale to Intentionally Defective Grantor Trust... IV-32 PRIVATE ANNUITY... IV-38 How it Works... IV-38 Tax Consequences... IV-38 Planning Opportunities... IV-40\ V. REFASHIONING IRREVOCABLE TRUSTS: PRACTICAL AND TAX CONSIDERATIONS FOR MODIFYING IRREVOCABLE TRUSTS Elizabeth K. Arias Raleigh Briani Bennett Mellen Columbia, SC SCOPE NOTE... V-1 MODIFICATION AND TERMINATION OF IRREVOCABLE TRUSTS... V-1 Overview... V-1 Layout... V-1 Procedure... V-2 Chart... V-3 DECANTING TO AND FROM IRREVOCABLE TRUSTS... V-3 Overview... V-3 Concept of Decanting... V-3 General Rule in North Carolina... V-3 Consent by a Beneficiary... V-4 Decanting by Trustee-Beneficiary... V-4 The Second Trust... V-4 Exercise of Special Power of Appointment... V-6 Rule Against Restraints on Alienation... V-6 Spendthrift Provision... V-7

5 Duty to Decant... V-7 Decanting under Terms of Trust or Common Law... V-7 Procedure... V-7 ANALYSIS OF THE MODIFICATION, TERMINATION AND DECANTING STATUTES... V-8 Modification or Termination of a Non-Charitable Trust by Consent... V-9 Modification or Termination of a Trusts... V-12 Modification or Termination of an Uneconomic Trust... V-13 Reformation of a Trust to Correct Mistakes... V-14 Modification or Termination of a Trust to Achieve Settlor s Tax Objectives... V-14 Trust Decanting Compared... V-14 Tax Consequences of Modification or Decanting... V-17 CHARITABLE TRUSTS... V-19 Cy Pres... V-19 Procedure for Bringing Cy Pres Action... V-19 REPRESENTATION ISSUES... V-19 Basic Principles... V-20 Representation of Minors... V-21 Representation of Incapacitated Persons... V-21 Representation of Competent Persons... V-22 Other Representation Categories... V-22 HYPOTHETICALS... V-23 VI. GIVING IT AWAY CHARITABLE GIFT TECHNIQUES - ADVISING CLIENTS ON OPTIONS Daniel K. Hicks Winston-Salem COVER PAGE... VI-1 INTRODUCTION... VI-2 BASIC METHODS OF CHARITABLE GIVING... VI-2 Outright Gifts or Bequests... VI-2 Retained Interest Gifts... VI-11 CHARITABLE REMAINDER GIFTS... VI-12 Required Characteristics... VI-12 Two Basic Types of Charitable Remainder Trusts... VI-16 Four Types of CRUTs... VI-19 Calculation of Charitable Deduction... VI-22 Current IRS Model (Sample) CRT Forms... VI-25 Income Tax Considerations... VI-27 Estate and Gift Tax Considerations... VI-30 Trustees... VI-30 Period of Payments... VI-31 Taxation of Payments to the Noncharitable Beneficiary... VI-32 Allocation of Capital Gain to Income... VI-33

6 Timing of Payment of Unitrust and Annuity Amount... VI-34 Valuation of Unmarketable Assets... VI-35 Use of Certain Short-Term, High Payout Charitable Remainder Trust Eliminated... VI-36 CRTs and Qualified Retirement Accounts... VI-37 Other Drafting Issues... VI-37 REMAINDER INTEREST IN A PERSONAL RESIDENCE OR FARM... VI-40 General Considerations... VI-40 Income, Gift and Estate Tax Considerations... VI-41 Implementation of Life Estate Arrangement... VI-43 CHARITABLE GIFT ANNUITIES... VI-44 General Considerations... VI-44 Income, Gift and Estate Tax Considerations... VI-45 Special Planning Options... VI-49 CHARITABLE LEAD TRUSTS... VI-50 Overview and Definition... VI-50 Types... VI-50 Qualification and Requirements... VI-52 Tax Issues... VI-55 TAX EXEMPT ORGANIZATIONS... VI-58 Notice and Presumption of Private Foundation Status... VI-58 Types of Organizations... VI-58 Importance of the Distinction... VI-60 ADDENDUM... VI-61