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Using Trust Protectors

In the governance of a trust, a trust protector can play a valuable role. A trust protector traditionally supervises a trustee. A trust protector simultaneously may help to ensure that the settlor’s intent or the trust’s purposes are being fulfilled. TRUST PROTECTOR POWERS A trust protector’s role is defined by the terms of the trust. Unlike a trustee, a trust protector does not have any statutory powers. In the traditional model of a trust protector, the trust protector supervises the trustee. In that model, a trust protector functions like a company’s board of directors, and the trustee functions like the company’s management. Accordingly, a trust protector’s powers often include the following powers: Power to remove a trustee Power to appoint a trustee In some instances, a trust protector may have…

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GST Tax Planning

The goal in Generation-Skipping Transfer (GST) tax planning is to transfer assets, together with future appreciation, to or for the benefit of grandchildren and other “skip persons” without incurring GST tax. DESCRIPTION The GST tax is a flat transfer tax equal to the maximum federal estate tax rate at the time of transfer (currently 40% in 2015), imposed in addition to any gift and estate taxes due at the time of a “generation-skipping transfer.” There are three types of generation-skipping transfers: a “direct skip,” a “taxable termination,” and a “taxable distribution.” A “direct skip” is a transfer, subject to gift or estate tax, to a skip person A taxable termination occurs on the termination of an interest in property held in trust, unless: Immediately after the termination a “non-skip person”…

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Using GRATs in Wealth Transfer Planning

A grantor-retained annuity trust or “GRAT” can be very useful in transferring wealth in a tax-efficient manner. A GRAT is an irrevocable trust that allows individuals to transfer the future appreciation of assets to beneficiaries free of gift tax. Use of this technique essentially ‘freezes’ the value of the GRAT assets and takes advantage of the asymmetry between the income tax rules governing grantor trusts and the estate tax rules governing the includibility of assets in the gross estate. GRAT STRUCTURE The term, annuity schedule, and beneficiary of a GRAT are determined upon establishment. A GRAT term can be two or more years. The annuity amount that the Grantor receives will be calculated at establishment and can be “zeroed-out” to make certain no gift tax is due upon the establishment…

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