DELGALLO.com Wealth Management Essentials - The Complexities of Structuring an Irrevocable Trust
By LEONARD J. DEL GALLO JR., M.S., MPASsm, CFP®
(www.DELGALLO.COM) Del Gallo Financial Services, LLC
A family should be very careful in the manner in which an irrevocable trust is structured. If there is income distributed to the grantor of the trust it may be considered part of the grantor’s estate. In the Estate of Edgar M. UHL., 25 TC 22, Code Sec(s), the courts determined that the grantor was receiving income from the trust and all the assets within the trust were then included in his estate, as a result the creditors may have been able to reach the entire corpus of the trust. An insurance trust that sprinkles powers to a trustee who is related to the grantor may avoid making the trust included in the grantor’s estate under Section 2036 and Section 2038 of the IRS code if the power provisions are used correctly. A general power of appointment permits the designated person to dispose of property within the trust to others, his, or her benefit and is classified under Section 2041(b)(1) of the IRS code. A special power of appointment would allow the holder of the power to dispose of trust assets to others only. Regulation 20.2041-1(c)(2) lists the powers that are approved for the beneficiary without having the trust subject to estate tax. It is possible if the grantor retains the right to borrow a portion of a trust that he/she created than that specific portion of the trust may be includible in the grantor’s estate under section 675(2). The grantor cannot remove or replace a trustee once the irrevocable trust is created under Rev. Rul. 79-353 to avoid the trust being included within their estate. An attorney drafting an irrevocable trust and the financial planner assisting the client should ask many questions to ensure the irrevocable trust is suitable, meets the clients’ needs, and is current with all laws and regulations.
Any questions please contact Del Gallo Financial Services, LLC by visiting our website at DELGALLO.com. Del Gallo Financial Services, LLC can arrange an educational seminar or workshop for your organization’s members and/or employees. This research commentary is intended to educate families so they may gain an introduction to a difficult planning topic and is not intended for any other purpose. Articles created by Len Del Gallo Jr., may not be copied or used without written permission from Len Del Gallo Jr.. Del Gallo Financial Services, LLC and its’ representatives do not provide tax or legal advice. Please consult your tax advisor or attorney for guidance on such matters and before implementing any strategies and/or updates to your planning. Del Gallo Financial Services, LLC is a Registered Investment Advisor and Licensed Insurance Agency.
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Leonard J. Del Gallo Jr., Broker Associate in Connecticut & Florida
CT Managing Broker: Berkshire Hathaway HomeServices N.E. Properties
www.bhhsneproperties.com
Office: 172 West Main Street
Avon, Ct. 06001
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