How to Create an Estate Plan that Can Be Quickly Modified

People who have an estate with various assets often need to be prepared to contend with sudden changes in both market valuation and tax laws. During the COVID-19 pandemic and an era of both political uncertainty and quickly changing markets, it can be particularly difficult to decide what assets to transfer into a trust. This article reviews some tips and strategies that you can follow to add flexibility to your estate plan so you can make quick decisions to capture the most of estate opportunities in the changing market.


# 1 – Utilize “Intentionally Defective” Irrevocable Grantor Trusts


Intentionally defective grantor trusts are best thought of as grantor trusts with a purposeful flaw that makes sure the trust creator continues to pay income taxes. An intentionally defective grantor trust can be utilized to reduce estate taxes. A grantor creates the trust, transfers investment assets into the trust while retaining the ability to reacquire assets in the trust through the substitution of other equally valuable property, pays gift tax on the transfer, and pays income taxes on any increase in the trust’s value. 


Grants are not recognized when a grantor trust purchases an appreciated asset. If a grantor lends funds to a grantor trust, interest paid by the trust back to the grantor is also not taxed. These trusts are most often utilized when the trust beneficiaries are children or grandchildren and the grantor has paid income tax on the growth of assets that the loved ones will inherit.

# 2 – Select a Jurisdiction with Favorable Modification Rules


If a person’s estate has connections to multiple states, it is important to consider which jurisdiction has the most opportunistic regulations for trust modifications. New York Estates, Powers, and Trusts Law section 7-1.9 provides a route to modify or amend an irrevocable trust. This section of New York estate planning allows the creator of a trust after obtaining written consent from all trust beneficiaries to amend or revoke part of all of a trust. In situations where one beneficiary declines to agree to a modification, a person will not be able to amend or modify a trust. Trusts can also not be amended if one of the beneficiaries is a minor of the trust’s creator has passed away or become incompetent.


# 3 – Place Right of a Substitution Clause in The Terms of Trusts


Provided that a trust has a clause granting the creator the ability to substitute assets of equal value, the trust will be automatically categorized as a grantor trust while the grantor or trust creator is still alive. The “swap” power provides the grantor with the ability to make changes to the trust without needing the approval of another party. Being able to make such decisions quickly can be ideal for property ownership as well as control of other low basis assets.


Obtain the Services of an Experienced Estate Planning Attorney

The estate planning process is complex but critical, particularly if you have certain desires about the type of end of life care you receive or how your assets should be transferred. To achieve these goals, one of the best steps that you can take is to obtain the assistance of a skilled attorney. Contact Ettinger Law Firm today to schedule a free case evaluation.

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