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Ask a trust officer:
Permanent trusts


Can a trust be changed after it has been funded?  –SEEKING PERMANENCE


Yes and no. What kind of trust are you talking about? A revocable living trust may be changed by its creator at any time and in any way, even cancelled completely—that is what “revocable” means, after all.

Irrevocable trusts, on the other hand, may not be altered so lightly. The beneficiaries of an irrevocable trust have vested interests that may be enforceable by law. These may be rights to present trust income or future principal.

From your signature, I take it you hope to “tie up” your assets so as to exert control of them from beyond the grave. This can be done if that is truly your wish. However, estate planners generally recommend building some flexibility into estate plans, because you can’t foresee the future circumstances, you can only provide guidance for the objectives of your trust. You may, for example give the trustee some discretion in the distribution of trust income or principal, taking into account the successes or failures of the beneficiaries. In a marital trust for a surviving spouse, it is common to provide the spouse with a general power of appointment, which may be used to redirect assets at the trust’s termination.

Sometimes the terms of an irrevocable trust may be altered through a process called decanting, in which assets are poured into a successor trust. Finally, you might want to include a trust protector for your trust, someone with the power to amend the trust consistent with the vision that you have for it.

We would be pleased to have an in-person meeting to tell you more.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

How to hit two targets with one account

Families with children typically have three important financial objectives: buying a home, saving for college, building retirement capital. That is a daunting challenge.

There are savings plans that come with tax benefits, which makes growing the account easier. For example, the traditional IRA offers tax deductions for contributions, and the Roth IRA provides the potential of tax-free payouts (contributions are subject to income limits). Both accounts defer taxes on account earnings.

The 529 plan is a popular approach for saving for college. Again, account earnings accumulate tax-deferred, and withdrawals used for qualified education expenses are tax free. However, earnings on funds not used for education may be subject to taxes and penalties. Many families cannot fund both education and retirement, so which one is better?

A new, bipartisan proposal made in June would resolve that question for many. The “College Savings Recovery Act,” proposed by Democratic Senator Bob Casey of Pennsylvania and Republican Senator Richard Burr of North Carolina, would permit a direct rollover of unused 529 account assets into a Roth IRA. Funds not spent for education would be eligible for retirement funding.

There are some limits imposed on the rollover, however. The contribution limits for 529 plans are far greater than those for Roth IRAs. There is the potential for abuse of 529 plans to get around the Roth IRA limits, and that would be foreclosed in the legislation by requiring that the 529 plan be in existence for at least ten years and the rollover be no larger than the plan balance five years earlier.

Still, if this liberalization of 529 plans is adopted, it may tilt the savings priority decisively in that direction.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

Expanded relief

For married couples, the credit against the federal estate and gift tax has been “portable” since 2010. Each spouse has a credit that will shield the first $12.06 million from the estate tax for a death in 2022.   However, if the first spouse to die leaves everything to the survivor, there is no federal estate tax due, thanks to the unlimited marital deduction. That means there is a “deceased spousal unused exemption” (DSUE) which passes to the surviving spouse. That effectively doubles the exemption from estate and gift taxes for married couples.

However, the DSUE is not automatic. It must be claimed on an estate tax return filed when the first spouse dies. The return must be filed even though no estate tax will be due; without it, the DSUE is lost.

What happens if an inexperienced executor fails to file the necessary estate tax return? The surviving spouse may ask the IRS for an extension of time, filing the estate tax return late. If the estate was below than the filing threshold in the year of the spouse’s death, the IRS has been very lenient in permitting the late filing. In fact, the IRS ruled in 2017 that such requests made within two years of death would be automatically granted (normally an estate tax return must be filed within nine months of death).

Requests for late estate tax filings to claim the DSUE have continued to mount, however. The reason is uncertain. It may be that rising asset prices have lifted more estates into potentially taxable territory, or that the prospect of the exempt amount falling in half in 2026 (as provided under current law) has focused more attention on the matter. In any case, the IRS ruled in July that the grace period is now expanded to five years after the first death.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

IRS focus on digital assets

The IRS has long held that virtual currencies, such a bitcoin, are property, not currency. As such, transactions conducted with a virtual currency may trigger taxable profits or deductible losses. Since 2019 the Service has required taxpayers to report purchases of cryptocurrency with their tax returns.

A change is coming with the 2022 tax return. First, the term “virtual currency” will be replaced by “digital asset,” a broader category that includes non-fungible tokens (NFTs). Second, the form will ask “At any time during 2022, did you (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” The significance of this is that gifts of digital assets are not subject to income tax. In asking this question the IRS is opening the door to more widespread tracking of all digital assets.

Under the Infrastructure Investment and Jobs Act enacted last year, digital assets will have the same reporting requirements as securities, beginning in 2024. New Regulations implementing the requirements are expected later this year.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

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