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161 Tr. & Est. 15 (2022)
Frequently Overlooked Trust Planning Considerations

handle is hein.journals/tande161 and id is 351 raw text is: the provisions of the trust include a provision which restricts the trustee from investing the trust assets in a manner which could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of trust assets. An institution considering permitting donor involvement in investment of funds should be aware that the IRS has strictly enforced the prohibition in a number of PLRs. For example, in PLR 7928076 (April 13, 1979), the IRS denied a charitable deduction because the trustees were required to obtain the agreement of an income beneficiary before switching investments. In PLR 8041100 (July 21, 1980), the IRS deemed unqualified a CRT that gave investment counsel the power to direct investments and eliminatedthe trustee's power to invest in the funds, thereby violating Treasury Regulations Section 1.664-1(a)(3). Other Donor Requests What if a donor insisted on managing the contributed property? That request would most likely be deemed by a charity as inconsistent with its policy of liquidating all assets received as gifts. Agreeing to such a request puts the charity at risk of violating its duty of prudence and diversification consistent with its investment policies. Charities should also decline a donor's offer to reimburse for investment losses, as accepting that offer may compromise the charity's impartiality in evaluating when to terminate the advisor (that is, the donor who's now advising on the management of contributed funds). Finally, the donee must be prepared to handle any request for the donor to charge investment fees. Like any fee, it must be reasonable, but it's not good optics for a donor managing contributed money to charge a fee, however reasonable. While any institution would be pleased to have extraordinarily generous donors with investment acumen, it needs to be ready to address the donor seeking impermissible control. Endnote 1. Prvate Letter Ruing 200445023 (Nov. 5, 2004). TIPS FROM THE PROS Frequently Overlooked Trust Planning Considerations By Al W King 411, co-founder of the South Dakota Trust Company LLC in Sioux Falls, S.D. The current population trends and the historic $84 trillion wealth transfer have only increased the importance and desire for modern directed trusts.1 The advantages of modern directed trust planning such as flexibility and control, asset protection, tax savings, privacy, legacy/succession and cross- border planning have never been more popular.' Here are some of the often-overlooked issues and considerations. QDOT Each year, 450,000 U.S. citizens marry non-resident aliens (NRAs).' There's a 100% marital deduction for assets passing from one U.S spouse to another at death. However, there isn't a 100% estate tax marital deduction for assets passing from a U.S. spouse to a non-U.S. spouse at death unless the assets pass to a qualified domestic trust (QDOT).4 The selection of a QDOT trustee becomes very important. If there's an individual trustee, and the QDOT assets exceed $2 million, then the individual trustee must post a bond or letter of credit to the Internal Revenue Service. Alternatively, a U.S. bank can serve as the QDOT trustee.5 The IRS' definition of bank is a key factor in choosing a QDOT trustee. This outdated definition may cause issues for certain corporate fiduciaries because it requires the U.S. bank to qualify as a corporation. Many modern directed trust companies, particularly in boutique trust jurisdictions,' are established as limited liability companies (LLCs) that aren't taxed as corporations. Consequently, they may not meet the requirement of a U.S. bank for QDOT purposes. Generally, the advantages of a modern trust company are overwhelming. Many advisors suggest that the QDOT bank corporate trustee definition could JUNE 2022 / TRUSTS & ESTATES / trustsandestatescom / 15

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