About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

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

What Is HeinOnline?

HeinOnline is a subscription-based resource containing nearly 3,000 academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most