New Trends in Trusts and Estates

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August 05, 2016

While the foundations of trust and estate planning remain constant, new rules and changes in technology or legislative trends might prompt investors and their tax and legal advisors to update their estate plans.


Recent developments worth highlighting include new state laws concerning digital assets, alternative approaches to trust payouts and a renewed focus on minimizing income taxes to potentially preserve the value of an estate.


Ensuring access to digital assets


Estates no longer encompass only physical property such as homes, vehicles or jewelry. Most people now own digital assets such as photos and videos, downloaded music and movies, or even cryptocurrencies such as Bitcoin that hold value in the offline world.


It can be hard for heirs to access assets after someone dies because:

Sally Mullen, Chief Fiduciary Officer, U.S. Bank Wealth Management


  • Privacy and computer fraud and abuse laws might restrict 
access to online accounts.
  • Service providers such as Facebook might lock accounts 
after a person’s death. Even if one has the passwords, logging in can violate service agreements.
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August 05, 2016

“Today, if a state hasn’t addressed survivorship rights to digital assets and someone indicates in a will that they want their Bitcoin account to go to you, how does that work?” asks Sally Mullen, Chief Fiduciary Officer for the U.S. Bank Wealth Management Group. “You may not have standing to demand to get into that account.”


In an effort to reconcile privacy rights with the need to properly dispose of an estate, the Uniform Law Commission developed the Uniform Fiduciary Access to Digital Assets Act, which was approved in 2014 and revised in 2015. The act doesn’t hold power on 
its own — rather, states may enact it. Its goal is to help a fiduciary access the electronic records of someone who has died on the premise that the fiduciary “steps into the shoes” of the account holder.


The 2015 revisions change how certain types of information may be accessed. For example, in the most recent version of the act, estate representatives may not obtain the content of a deceased person’s electronic communications unless the person consented to the disclosure. Previously, access to electronic communications was permitted unless the person opted out while alive.

There is another new provision of the Uniform Act: The custodian of a trust may require a trustee to identify a specific digital account and provide evidence linking the account to the trust.


As of March 31, 2016, legislation governing access to digital accounts in the event of the account holder’s death had been introduced in at least 29 states, and at least 10 states have enacted laws this year, according to the National Conference of State Legislatures.


Until all states adopt some protection for fiduciaries and heirs to digital assets, Mullen recommends keeping a list of passwords to digital accounts in a safe place with other estate-planning documents.


Statutory powers to adjust; unitrust conversions


The U.S. Federal Reserve raised interest rates in December 2015 for the first time since the financial crisis, but rates remain low, making the past few years challenging for trust beneficiaries who earn income from a trust. With rates so low, yields have been lower on cash and most fixed-income securities. Still, at some point it is likely rates will rise, which might push trustees to change strategies.

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August 05, 2016

Unitrusts. In the states that permit it, some trustees have elected in certain cases to convert a traditional trust into a vehicle known as a unitrust. The person designated to receive income gets a set percentage payout rather than net income (the payout is usually 3 percent to 5 percent a year, according to IRS regulations; some states have set payouts such as 4 percent a year).


That percentage payout is likely to be greater than current market yields, allowing income beneficiaries to share in the stock-market gains of recent years, Mullen says. “When the value of the stocks goes up in the account, it doesn’t mean much to the current income beneficiary if that person is limited to interest and dividends. When the trustee converts the trust to a unitrust, the beneficiary receives a portion of the growth.” For example, if a trust was worth $1 million last year, and stock-market gains have increased its value to $1.2 million, a person receiving 4 percent income under a unitrust approach would reap extra benefits.


However, while a unitrust may appeal to those currently receiving income from a trust, it may be an issue for those who will eventually inherit the remainder of the assets because the increased payouts may diminish principal assets over time.
If they’re considering implementing a unitrust, trustees should consult with both classes of beneficiaries to address such concerns ahead of time.

Also, unitrust statutes often require a court order and/or other formalities to convert the unitrust back to a traditional trust.


“Let’s say we have a lot of interest-rate hikes in a year, and the following year everybody wants to flip a unitrust back to a traditional trust,” Mullen says. “It might not be easy.”


Statutory Power to Adjust. A more flexible option known as the “statutory power to adjust” exists in many states. The trustee has discretion to use a total-return approach and pay out a fixed percentage of the trust corpus (again, within the 3 percent to 5 percent range), but there is no formal reconstitution of the trust as a unitrust, creating greater flexibility as economic conditions change.


Minimizing taxes during one’s lifetime


“In the estate-planning community, there has been increasing focus on income-tax planning,” Mullen says. That’s because in 2013, Congress permanently set the federal estate-tax exemption at $5 million for an individual or $10 million for a couple.


The exemption is indexed to inflation, meaning the amount rose to $5.45 million per individual and $10.9 million per couple in 2016. While thousands of families remain subject to the estate tax, most taxpayers will not cross the threshold — which was as low as $675,000 in 2001.

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August 05, 2016

As a result, estate planners may now spend less time thinking about federal estate tax and more time helping clients reduce taxes before they die so heirs are left with more.


From an estate planning standpoint, of course, it’s still important to have a will, which states how you want your assets to be distributed after you die and to whom they should go. You’ll also want to ensure that your assets are titled properly and to specify that they go to the correct beneficiaries. Families with more complex estates may consider working with their attorney to establish a trust, which can be structured in many different ways.


Once those needs have been addressed, estate planners are encouraging clients to consider the impact of capital-gains taxes on the sale of investments. Previously, planning discussions weren’t always as focused on reducing long-term capital-gains taxes because there was more concern about potential estate tax issues.


Now, however, it can be more important to thinkabout which assets to sell and which to keep as part of your long-term portfolio (ultimately your estate). 

The federal tax code has a provision called a “step up” that eliminates the long-term capital-gains tax on an asset held until death.


Investors also may want to use gift-tax exclusions to reduce their annual income and minimize their tax bill. In 2016, individuals can give $14,000 per donee, and couples $28,000 per donee, without paying the gift tax. The top rate for estate and gift taxes is currently 40 percent.


Because trusts and estate transfer taxes are governed by both federal and state law, it’s important to research and understand the rules in your home state. In some cases, estate tax may still be a concern at the state level if not the federal level. However, a number of states increased their estate-tax exemptions for 2016, and some will continue to increase annually until they match the federal exemption. Tennessee, meanwhile, repealed its estate tax altogether as of 2016.


“For many of us, the focus can be around what you can do during your lifetime to get assets to your heirs in a way that minimizes the impact of income taxes,” Mullen says.


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