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Heard at Heckerling 2020 - Day 2

The second day at Heckerling brought a rapid-fire succession of sessions on numerous topics, both technical and eye opening.

Michael Greenwald, a former Treasury policy advisor, presented an emotional and interesting report regarding U.S. tactics to curb financing efforts of terrorist organizations. He described the government’s use of Section 311 of the Money Laundering Control Act of 1986 which, when used against financial entities that sponsor terrorism, prevents them from moving funds through correspondent banks in U.S. dollars.

Some of the more interesting and enlightening technical points covered include:

  • Jonathan Blattmacher described the unique use of trusts to reduce state income taxes of a married couple living in separate states. The spouse in the high-tax state could gift their intangible income producing assets to their spouse in the low-income state. After a reasonable period of time, the spouse contributes these assets to a QTIP trust, which is treated as a grantor trust. While the income will now be taxed to the lower-tax state resident spouse, the distributions will go to the spouse residing in the high-tax state.
  • Nancy Henderson discussed the transfer of assets to family entities where the transferor retains certain powers over the assets. A power or right to control the enjoyment or possession of income could result in an estate tax inclusion regardless of whether or not the power is actually exercised. Properly drafted fiduciary powers can mitigate these problems.
  • Craig Reaves discussed special needs trusts and described the differences between self-settled and third party settled trusts. While both trusts are designed as supplements to needs-based government aid, there are differences in formation and required conditions in each.
    • The self-settled trust will not qualify for asset protection unless the trust is specifically drawn for a beneficiary who is under the age of 65, will limit distributions, and will provide for repayment of any Medicaid benefits out of remaining assets after the death of the beneficiary.
    • The third party settled trust does not have an age limit and does not require repaying of Medicaid benefits.
  • In a speech regarding problems and issues with advising multinational families, Joshua Rubenstein pointed out that the first estate tax law and the first antitrust law were written in the same year and both had the same goal—to take assets from the party that accumulated substantial assets based on their use of our capitalist system.
  • Carol Cantrell made several key points related to S-Corporations in the estate and trust arena including:
    • In two 2019 Tax Court cases, the concept of discounting the value of an S-Corp to reflect the taxes paid by individuals has been approved.
    • While the grantor will normally be taxed on S-Corp income owned by the trust, a QSST election by that grantor trust will shift the taxation to the trust beneficiary.
    • While a grantor trust can still be an eligible S-Corp owner for two years following the death of grantor, care should be taken to make sure that either a QSST or ESBT election is made or the shares are distributed. Failure to do so will result in an ineligible shareholder and S status termination.

We enjoyed learning new things and expanding our knowledge base in others. If you would like to learn more about how Citrin Cooperman can help you with any of these issues, please contact a member of our dedicated Trust & Estate Practice. We are looking forward to seeing what tomorrow brings. 

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