Drawn from Steve Gorin’s 2nd quarter 2021 newsletter, this course discusses recent cases on when payments to owners who perform services are compensation and when they are distributions; describes issues in modifying trusts to avoid proposed taxes on distributions from trusts after December 31, 2021; and evaluates a non-grantor trust’s use of annuities and life insurance to avoid proposed high-income rates on dividends and capital gains.

Highlights:

• We will review a 2021 case that showed what not to do when trying to compensate owners, as well as a smattering of cases and rulings from the past couple of years relating to compensating owners or key employees.


• We will discuss how trusts that allow distributions among various generations without requiring the trustee to apply standards can likely terminate free from any tax issues whatsoever, whereas trusts that provide more limited discretion or more well-defined rights to beneficial interests may have income and transfer tax consequences.


• As part of a coordinated plan, remaindermen agreed to a trustee distributing the entire trust to the surviving spouse. The surviving spouse, in turn, created irrevocable gift trusts for the remaindermen and allocated her GST exemption to them. We will discuss the children’s arguments that they did not make a gift.


• We will discuss unique tax issues when using an annuity contract or life insurance policy to try to avoid the drag of the Biden proposal to tax capital gains as ordinary income for upper-income taxpayers.

Learning Objectives:

• Identify the pros and cons of a C corporation taxation structure


• Review President Biden’s proposed taxes on distributions from trusts


• Summarize CCA 202118008, addressing the commutation of a QTIP trust


• Review the idea of maintaining a single trust with separate shares instead of terminating a trust when the senior generation dies.


• Identify the Biden proposal to tax capital gains as ordinary income for upper-income taxpayers