[WSBAPT] Stepped-up basis for Credit Shelter Trust with General Power of Appt.

Tue Jan 9 10:57:58 PST 2018

Ronda,

Until a time when section 1014 is changed, I think you will find John’s approach more efficient. As a theoretical exercise I have considered a formula, ordering, triggering approach in the event of full repeal of the Federal estate tax combined with some type of limited step up. The problem is, to be tax efficient, the calculation would need to consider the tax brackets of the estate & beneficiaries, the adjusted basis of assets at sale & the time value of money for the timing of when the taxes. While the top capital gains rate (including the investment income tax surcharge) might be 23.8% and the top state estate tax rate is 20%, these are not flat rates. In addition, directing the retirement accounts to the testamentary trust presents its own tax inefficiency issues.

Sincerely,

Derek W. Jensen, JD, LLM
Jensen Law Office, PLLC

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of John J. Sullivan
Sent: Friday, December 29, 2017 11:57 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Stepped-up basis for Credit Shelter Trust with General Power of Appt.

Ronda and Chris:

I’m not completely clear what Ronda’s client’s full intent is. With a blended family usually control is an issue, but Ronda is suggesting a general power of appointment.

If one goal is a second step up in basis, why not set up the testamentary trust(s) for a QTIP election for federal purposes only? Especially with the federal threshold at $11.2 million each starting next week?

If the estates are taxable for federal purposes too, bifurcate the trusts so the portion that will be QTIP’d is separate?

That way the first decedent can control ultimate disposition as much as s/he wants while maximizing the second step up and minimizing the estate tax hit.

John Sullivan
Sent from my iPhone

On Dec 29, 2017, at 11:02 AM, Eden Rubenstein Toner <attorneytoner at earthlink.net<mailto:attorneytoner at earthlink.net>> wrote:
Ronda—I have not used POA’s extensively, so others may have better info.  But, if you don’t need to protect from estate tax, then you could use a marital trust instead of a credit shelter.  Call me if you’d like to discuss.
Eden
Eden Rubenstein Toner
Attorney at Law
1600-B SW Dash Point Road, #163
Federal Way, WA 98023
phone 206-953-4485
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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Chris Moore
Sent: Friday, December 29, 2017 10:32 AM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] Stepped-up basis for Credit Shelter Trust with General Power of Appt.

Thank you for this question.  I am interested in any comments as well.

I am assuming your desire for a step-up in basis is for the Washington Estate Tax credit shelter trust since a CST  is not needed for federal purposes due to portability.  When I have tried to think of a way to get stepped up basis on a WA credit shelter trust I have always come back to the premise that in order to obtain a step-up the assets must pass through the estate of the decedent.  However, for WA estate tax purposes, if the assets pass through the survivor’s estate, then, you have defeated the purpose of the credit shelter trust for WA estate tax purposes.  Perhaps there are ways to accomplish this, but simplicity will certainly be lost.

The only simple way I can see to resolve this problem is for the WA legislature to adopt portability.

Sincerely,

Chris J. Moore
Christopher J. Moore, JD, CPA (Inactive), AEP®, EPLS*
Creason, Moore, Dokken & Geidl, PLLC
Lawyers
1219 Idaho Street, POB 835
Lewiston, Idaho 83501-0835
Phone: 208-743-1516; Fax: 208-746-2231
Website: www.cmd-law.com<http://www.cmd-law.com/>

*Certified as an Estate Planning Law Specialist by the Estate Law Specialist Board, Inc., the only estate planning certification entity approved by both the American Bar Association and the Idaho State Bar Association.
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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>] On Behalf Of Ronda Larson
Sent: Thursday, December 28, 2017 4:22 PM
To: wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Stepped-up basis for Credit Shelter Trust with General Power of Appt.

Listmates,

I am seeking feedback from seasoned tax savvy estate planners. Clients are a blended family but do not have a taxable estate. I would like the clients to get a step up in basis on property that will be put in a testamentary credit shelter trust. My plan is to add language giving a formula testamentary general power of appointment with ordering rules and non-adverse party consent. Thus, the surviving spouse can appoint to his or her estate’s creditors (and, I plan to also include power to appoint to the trustor’s then-living descendants, unless the client says otherwise), but the power is limited to assets with the greatest appreciation (and excludes IRA/Retirement plans), and to exercise the power, the spouse must have consent of a non-adverse party.

In cases where there is a potentially taxable estate, I plan to add a capping rule, thus limiting the power to appoint to the fraction or percentage that doesn’t trigger estate taxes.

Is there anything about Washington state law that I am not accounting for in this scheme? Any other thoughts you have regarding this issue? I just want to cover my bases by putting it out here for input.

Thanks.

Ronda Larson
Larson Law, PLLC
1700 Cooper Point Rd SW, Bldg A3
Olympia WA 98502
Ph: 360-259-3076
ronda at larsonlawpllc.com<mailto:ronda at larsonlawpllc.com>
www.larsonlawpllc.com<http://www.larsonlawpllc.com/>

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