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Structuring Sprinkle Trusts to Minimize Income Tax Consequences to Trust and Beneficiaries

Discretionary Distribution Strategies to Reduce Income Tax and Avoid Challenges to Trustee Sprinkle Power

Recording of a 90-minute CLE/CPE webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford CPE+ Pass. Click for more information.
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Conducted on Thursday, March 22, 2018

Recorded event now available

or call 1-800-926-7926

This CLE/CPE course will provide estate planning counsel with guidance for designing income tax minimization strategies using sprinkle/spray trusts and other distribution mechanisms to shift tax burdens from higher to lower taxed beneficiaries. The panel will go beyond the basics to demonstrate structuring sprinkle provisions in discretionary trusts to allow trustees power to decide how trust assets will be distributed. The panel will discuss drafting considerations to substantiate grantor intent while protecting trustees from beneficiary challenges or income tax consequences arising from the exercise of fiduciary discretion.

Description

The changes to the estate and gift tax regime in the tax overhaul bill enacted in Dec. 2017 have made income tax minimization more important than ever for estate planners. With the estate tax exemptions drastically increased for at least the next eight years, the larger challenge for trust drafters is to avoid or defer income tax on trust assets and accumulation.

A powerful tool in post-mortem income tax minimization is using sprinkle or spray trusts as part of a distribution strategy to ensure tax efficient disbursement of trust assets.

Sprinkle provisions in irrevocable trusts allow the trustee to exercise discretion on how to distribute trust assets to beneficiaries. While most trust documents provide express guidance on which assets are to be distributed to which beneficiaries at specified times, a spray provision gives the trustee power to choose how and when to distribute assets to beneficiaries.

Most states require that discretionary distributions be made for the “health, education, maintenance and/or support” of beneficiaries. This HEMS standard is broadly interpreted to protect trustees; nonetheless, fiduciaries often face challenges when exercising discretion to make distributions. Estate and trust counsel should always draft trust documents to express the grantor’s intent and protect the trustee from unnecessary challenges.

Listen as our experienced panel provides comprehensive and practical details on drafting sprinkle provisions in trust documents to minimize income tax consequences.

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Outline

  1. Types of sprinkle trusts
  2. HEMS standard (health, education, maintenance and support)
  3. Key language that a sprinkle provision should contain
  4. Using sprinkle trusts as an income tax minimization strategy
  5. Risks to trustees in exercising sprinkle powers

Benefits

The panel will review these and other key issues:

  • What types of trust assets would see the most benefit from being subject to discretionary sprinkle distribution provisions?
  • The limits of HEMS standards in granting trustee discretion in a sprinkle trust
  • Evaluating beneficiaries’ tax situations and marginal rates in making distribution determinations
  • Risks to fiduciaries in exercising discretion to make distributions under a sprinkle trust

Faculty

Gross, Elise
Elise Gross, Esq., LL.M.
Of Counsel
Presser Law Firm

Ms. Gross represents individuals and businesses in connection with the establishment of comprehensive asset protection...  |  Read More

Osterhoudt, Arlene
Arlene A. Newton
Counsel
Skadden Arps Slate Meagher & Flom

Ms. Newton focuses her practice on estate and gift tax planning and the administration of complex trusts and estates....  |  Read More

Access Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

To find out which recorded format will provide the best CLE option, select your state:

CLE On-Demand Video