Taxes: Flexible Planning For Wealth

Flexible Planning For Wealth

By: D. Michael Trainotti

A family trust is the vehicle that is used to transfer wealth from one generation to the next. The American Taxpayer Relief Act of 2012 (“ATRA”) allows in 2016 for a couple to transfer up to $10.9 million without having to worry about their estate paying any estate taxes on the death of the surviving spouse ($5.45 million per person) and for an individual $5.45 million. As I have mentioned before, ATRA deals only with estate tax on death and not the transfer of wealth, which could be significant.

This last year I have been involved in various matters dealing with:

  1. Resolving disputes between family members regarding business ownership, which involved a deceased spouse’s trust while the surviving spouse was still alive;
  2. Changing distributions to heirs where the old estate planning was outdated because of ATRA that also involved a deceased spouse’s trust;
  3. Transferring property from a deceased spouse’s trust to children in order to utilize the deceased spouse’s $1 million parent child property tax exclusion while the surviving spouse was still alive; and
  4. Shifting income from one generation to a younger generating from an irrevocable trust for the benefit of children during their lifetime and distribution to the grandchildren.

In the first three situations above, significant asset transfers of family wealth could be achieved without having to go to court. This was because each of the family trusts provided that on the death of the deceased spouse, the surviving spouse was given a limited power of appointment to change the terms of distribution to their children. Without this provision, the present day challenges could not have been accomplished or may not have been approved by the court to change the terms of the deceased spouse’s trust.

In the last situation, the irrevocable trust did not provide for the children to be able to exercise a limited power of appointment to be able to shift some of the income to their children while they were alive.

Because of certain generation skipping transfer tax issues the family is faced with expensive choices of either first obtaining IRS approval to change the terms of the trust or go to court and modify the trust. This expense could have been avoided if the trust provided for the exercise of limited power of appointment.

Michael Trainotti

Michael Trainotti

D. Michael Trainotti has a general tax practice in Long Beach which emphasizes real estate, closely held businesses and estate planning matters. He has a master’s degree in taxation and is a member of the tax sections of the State Bar of California dealing with real estate, pass-through entities and estate planning. He is also a member of the same tax sections of the Los Angeles County Bar Association and the American Bar Association. Mr. Trainotti would be pleased to hear from you regarding future topics of interest or comments on this article. Please contact him directly at his office at (562) 590-8621 or by e-mail at [email protected]. You can also visit his website at