The document discusses advanced strategies for estate planning, focusing on the implications of increased federal exemption and the intertwining of income tax and estate planning. Key topics include the benefits of joint exempt step-up trusts (JEST), the role of grantor trusts for income tax planning, and various trust structures to optimize tax outcomes for the surviving spouse and heirs. Additionally, it addresses the impact of tax law changes on asset transfers, capital gains, and potential pitfalls in estate management, particularly for non-citizen spouses and international assets.

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2. * International Boutique Trusts and
Estates firm specializing in
sophisticated multigenerational
asset transfers.
* Recognized both nationally by
Martindale Hubbell as AV
preeminent
* STEP Boutique firm of the year
*

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1. The increased Federal exemption has created a new paradigm in estate
planning. Why must equal emphasis now be given to capital gains tax
planning?
2. What are the opportunities to achieve a step up in basis after planning is
complete?
3. What are the consequences and income tax benefits of planning
testamentary trusts for the benefit of the surviving spouse as grantor trusts?
4. Can Joint Exempt Step-up Trusts (JEST) be used to ensure a full step up in
basis for jointly owned property first?
5. Gifting “gap-QTIP” (or Qualified Terminable Interest Property) interest
income – how can unused exemption amounts be uniquely leveraged? Why
sprinkle distributions among other beneficiaries?
6. Hot Topics in Life Insurance

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*Many clients have greatly
appreciated stock, and the
gains tax if sold in the trust
can be a significant amount.
With the higher exemption
amount, it might make sense
to leave low basis assets in
one’s estate to achieve step
up.
Estate planning has become inextricably
intertwined with income tax planning.
Income tax planning can minimize
current income taxes and maximize
basis step up upon death.
Step up in income tax basis in many
instances will have a greater tax
benefit than state estate tax savings.

5. Swapping into the trust high
basis assets or cash for low
basis assets can help to
achieve the desired step up
in basis at the grantor’s
death.
The trust could also hold a
note for assets moved back
into the grantor’s estate to
achieve the same step up in
basis.
*

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Joint Exempt Step-Up Trust (JEST) Chronology
The 4 Steps from Drafting to Implementation
Copyright 2013 Gassman Law Associates, P.A.
J:GGassmanARTICLELeimberg ArticlesJoint Trust ArticleNew Joint Exempt Step-Up Trust Chart.1e FINAL.xlsx :kh*jr 3/
STEP 2 STEP 4
Step 3 note:
STEP 3
Before Funding Funding of Joint
Revocable Trust
each spouse has the
right to revoke
his/her share until
Division upon First Dying
Spouse's Death
assume Husband dies first
Results of JEST technique
Husband's Assets
Joint Assets: Joint Tenants
w/ Right of Survivorship
Joint Assets: Tenancy by
the Entirety
Wife's Assets
Husband's Share
Husband's Assets
1/2 of former
JTWROS Assets
1/2 of former TBE
Assets (or by other
percentage)
Wife's Share
Wife's Assets
1/2 of former
JTWROS Assets
1/2 of former TBE
Assets (or by
other percentage)
1/2 to
each
Spouse's
Share
1/2 to
each
spouse's
share or
actuarial
value
Credit Shelter Trust A
Funded from Husband's Share
in the amount of Husband's
available estate tax exemption
(EST)
Q-TIP Trust A
If Husband's Share exceeds
his available EST, the excess
will fund this trust
The IRS could find a gift upon contribution of TBE
assets to the joint revocable trust, but this gift will
qualify for the marital deduction if recipient
spouse can withdraw what is added to his or her
share. Also see PLR 200201021.
Credit Shelter Trust B
If Husband's Share is less than
his available EST, Wife's Share
will fund this trust in the
amount of Husband's remaining
EST (but not in excess of her
available EST)
Q-TIP Trust B
If Wife's share has any
remaining assets, they will
be used to fund this trust
- For Wife & descendant's benefit (limited by
ascertainable standard)
- Assets will receive a stepped-up basis
- Assets are protected from Wife's creditors
- Assets escape estate tax on Wife's death
-Wife can be beneficiary of income and principal
-Assets will receive a stepped-up basis on Husband's
death, and then again on Wife's death
- Assets included in Wife's taxable estate
- Will be protected from Wife's creditors
-Assets may receive a stepped-up basis, but this is
more likely if Wife is not a beneficiary
- May escape estate tax liability on Wife's death
-For creditor protection and estate tax exclusion
purposes, CST B may be moved to an APT jurisdiction
Special Consideration: If Wife is found to have a gift of
trust assets to Husband upon Husband's death, this
gift may qualify for the marital deduction
- If IRS argues that Wife has gifted to trust the gift will be
incomplete because of her power of appointment
-Wife will be income beneficiary
-Assets may receive a stepped-up basis on
Husband's death & again on Wife's death
- Assets included in Wife's estate
- May not be protected from Wife's creditors unless
moved to APT trust jurisdiction
- If IRS argues that Wife has gifted to trust the gift
will be incomplete because of her power of
appointment
CST A and CST B can be merged if there is no concern with estate tax,
stepped-up basis, creditor protection, or credit shelter trust effectiveness.
Q-TIP Trust A and Q-TIP Trust B can be merged if there is no concern with
respect to stepped-up basis or credit protection effectiveness.
This allows a full step up in
basis of all assets in the
trust (as opposed to the 50%
in normal cases).
A JEST is used in non-
community property states.
A husband, for example,
could create the trust and
reserve the power to
amend, revoke, or
terminate it. The wife could
be the beneficiary of the
trust, and all trust property
is paid to her estate upon
death.
There have been two recent
private letter rulings in
favor of this strategy, but it
is in its nascent stages.

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*A trust jumps to the
highest levels of
taxation for gains and
income tax at much
lower thresholds than
for individuals.
*A grantor trust can be set
up to potentially pay
lower rates of taxation
with a trust established
for a surviving spouse for
which distributions are
not mandatory. The
income earned on the
trust will be picked up on
the surviving spouse’s
personal filing.

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* For the amount of the gap
between the state
exemption amount and
the federal exemption
amount, one should
consider the gift of a gap-
QTIP trust.
* Income interest for the
QTIP should be given to
the trust for the children.
This will leverage the first
spouse’s Deceased Spousal
Unused Exclusion (DSUE)
and avoid inclusion in the
surviving spouse’s estate.
*The surviving spouse
should not be named
Trustee of the gap QTIP
trust but can use the
principal, since only
the owner of the
income interest is
considered owner for
the IRS purposes.
*The exercise by the
spouse of a general
power of appointment
will accomplish the
same tax results.

9. * Swapping trust assets
* Purchase contracts between trusts
for interpolated reserve value
* Providing for heirs not in family
business
* 2% owner to Christofani
Beneficiaries
*

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*Avoid a “fire sale”
*Maintain illiquid assets
*Facilitate business
succession plan
*“Key man” policy,
cross purchase
agreements, etc.
*Gifts to those not
beneficiaries of the
estate at large
*Divorce obligations,
alimony or support

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*No step up for gifted assets
*Insurance to cover gains taxes due
*Insurance employed as a hedge against
mortality risk (GRATs, QPRTs, installment sales)

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*Move additional cash estate and capital gains
tax free to heirs
*Spousal Access if serving for income
replacement
*Asset protection for estranged spouses, law
suits, creditors, etc.
*Borrowing rights
*Decanting

13. FBAR, International Inheritances, Non-
Citizen Spouses, Foreign Trusts and more
*

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*QDOT Trusts
*Unlimited Marital
Deductions
*Annuities and
Retirement Plans
*Administration of
QDOT distribution
issues
*Complications if assets
exceed $2MM
*Gifting limits to non-
citizen spouse

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*Who is a “covered expatriate?”
*Taxed at the highest rate (40%)
*Tax paid by recipient not individual making the
gift or bequest
*Much more confiscatory estate tax exemptions
*Use the gift tax exemption

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*June 30th is deadline
*Threshold $10,000 total in
all international bank
accounts
*Form 8938
*Debate over International
Real Estate
Reporting for International Assets

17. *No income tax to US
beneficiary
*Form 3520 for amounts over
$100,000
*Penalties are significant and
can include jail time
*Subject to tax on US source
income as if trust was a
non-resident
*All current income
distributed to US
beneficiaries
*Throwback tax
*Insurance used as an
Accumulation vehicle
*

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For decedents on or
after...
And before... The exclusion amount will be...
1-Apr-14 1-Apr-15 $2,062,500
1-Apr-15 1-Apr-16 $3,125,000
1-Apr-16 1-Apr-17 $4,187,500
1-Apr-17 Jan. 1, 2019 $5,250,000
Jan. 1, 2019 Scheduled to equal the federal estate tax
exemption

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