Administrative Powers (Portfolio 820)

Tax Management Portfolio, Administrative Powers, No. 820-3rd, describes and analyzes the development of the law with regard to the estate and gift tax consequences of various administrative powers granted to trustees; reserved by a settlor or a decedent; or held by an executor, custodian or others, including third parties such as trust protectors.

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Description

Tax Management Portfolio, Administrative Powers, No. 820-3rd, describes and analyzes the development of the law with regard to the estate and gift tax consequences of various administrative powers granted to trustees; reserved by a settlor or a decedent; or held by an executor, custodian or others, including third parties such as trust protectors. For many years, individuals have attempted to reduce their income tax burden and their ultimate estate tax liability by means of lifetime transfers of property in trust. In many instances, the transferor has attempted to give away the property to achieve the tax benefit while, at the same time, retaining some degree of control over the transferred property by means of reserving, or granting to a trustee or others, certain discretionary and administrative powers.
Administrative powers, an essential element in all trusts, are, for purposes of this Portfolio, defined as powers that are not obviously substantive or dispositive, but rather are more ministerial or incidental to the basic terms of the transfer of the property to the trustee or to the use or disposition of the property after the transfer. The context of the definition is that of estate and gift taxes rather than income taxes.
The Portfolio discusses the estate and gift tax questions that arise from the inclusion in trust instruments of specific administrative powers, normally used to provide flexibility to a trustee, to effectuate the intention of the settlor/decedent without the need of seeking court approval. Local law controls the interpretation of the governing instruments, and is of importance with regard to the federal estate or gift tax effect of the creation, existence or exercise of an administrative power. Federal courts have tried to give effect to the settlor's intention and to determine whether or not the holder of the power is limited in its use of the power by a local court. In most instances, if the power is found to be subject to such control, the federal courts have held the powers to have little or no estate or gift tax consequences.

Authors

Alan Acker

Alan Acker was born and raised in Chicago, Illinois. He graduated from high school in 1970, the same year he earned the Illinois state championship in fencing. He continued fencing at the University of Illinois where he received his Bachelor of Science in accountancy in 1974 and a Big Ten Fencing Championship title in 1973. He continued his education at the Chicago-Kent College of Law gaining his Juris Doctorate in 1977. He has been practicing law ever since.
Alan's legal practice focuses on the areas of estate planning, estate and gift taxation, income taxation of trusts and estates, charitable giving, and probate. He has practiced for law firms in Chicago, Illinois, Norfolk, Virginia, and Columbus, Ohio, but has been a solo practitioner for about the last 15 years with a short stint in the second half of 2010 as judge of the Franklin County, Ohio Probate Court. He has written for numerous publications throughout his career including authoring five Tax Management Portfolios for BNA and the book Estate Planners' Guide to Income in Respect of a Decedent published by CCH. He also created the E&E Trust and Will Drafting System (www.trustandwilldraftingsystem.com), a web-based system to help Ohio attorneys in the drafting of trusts, wills, and financial powers of attorney.
Alan's contributions to the legal community extend far beyond his own practice. He is a member of the Ohio and Illinois State Bars, the Columbus Bar Association and the Ohio Society of CPAs. He is an adjunct professor of Federal Income Taxation of Trusts and Estates and of Drafting Wills and Trusts at Capital Law and Graduate Center in Columbus, Ohio. He is a member of the Estate Planning, Trust & Probate Specialty Board for Ohio and a representative to the Estate Planning, Trust and Probate Law Section Committee of the Ohio State Bar Association. He was a past Chairman of the Columbus Estate Planning Council. Since 1993 he has been a fellow of the American College of Trust and Estate Counsel. He is a frequent lecturer for Ohio Continuing Legal Education and other professional groups.
Alan has been recognized by different organizations and publications for his work. Tax Management Inc. named him a “Distinguished Author” for contributions to their Tax Management Program. Alan consistently has been named an “Ohio Top 100 Super Lawyer” by Law & Politics and the publishers of Cincinnati Magazine. In December 2005 he was selected a Top 100 Attorney in the country by Robb Report Worth Magazine. He is included in The Best Lawyers in America which recently named Alan as the number one trusts and estates lawyer in Central Ohio. He is a Life Member of the National Registry of Who's Who published in the 2001 Edition.
Alan has always been an active member of his community and gives back in ways that enable him to be put to the greatest use. He is a Trustee and past President of the Columbus Jewish Foundation. He is a Trustee of the Columbus Jewish Federation, of the Temple Israel Foundation and of the WHV Foundation. He is also a member of the Legal and Tax Advisory Committee of the Columbus Jewish Foundation.
On top of all of his professional and community activities Alan is married to his wife Lillian of 38 years. Together they raised four children, Steven, Kenneth, Jennifer and Daniel. Alan believes each person can do his best for his community by leading by example. The example set by Alan Acker is of a virtuous life dedicated to hard work and serving the community in which he lives.

Table of Contents

Detailed Analysis

I. Introduction

II. General Estate and Gift Tax Implications

III. Definition of Administrative Powers

IV. Creation of Administrative Powers

V. Power of Settlor to Act as Trustee or to Appoint Trustees

A. Power of Settlor to Name Himself as Trustee

B. Power of Settlor to Name Others as Trustees

C. De Facto Control of Trustees

VI. Estate Tax Statutory Concepts

Introductory Material

A. Section 2033 - Property in Which Decedent Had an Interest

B. Section 2035 - Transfers Within Three Years of Death

C. Section 2036 - Transfers With Retained Life Estate

1. Power of Settlor to Accumulate or Distribute Trust Income

2. Power to Use Income for Legal Obligations

3. Power to Affect Production of Trust Income

D. Section 2037 - Transfers Taking Effect at Death

E. Section 2038 - Revocable Transfers

F. Section 2041 - Powers of Appointment

G. Section 2042 - Insurance

H. Section 2046 - Disclaimers

I. Section 2055 - Transfers for Public, Charitable and Religious Uses

1. Split-Interest Trusts

2. Termination of Impermissible Powers

3. Selection of Charity

J. Section 2056 - Marital Deduction

1. Powers Pertaining to Allocation or Apportionment of Receipts and Expenditures

2. Power to Determine Manner of Allocation of Receipts and Expenditures

3. Other Administrative Powers

4. Payment of Death Taxes, Administrative Expenses, Debts and Other Charges from Marital Deduction Property

VII. Gift Tax Statutory Concepts

A. Section 2503(b) - Exclusions from Gifts

B. Section 2503(c) - Exclusions from Gifts - Minors

C. Section 2511 - Incomplete Transfers

D. Section 2514 - Powers of Appointment

E. Section 2518 - Disclaimers

F. Section 2522 - Charitable Gifts

G. Section 2523 - Gift Tax Marital Deduction

VIII. Effect of State Law

IX. Specific Administrative Powers

Introductory Material

A. Power to Limit Liability of Trustee

B. Power to Amend Administrative Provisions

C. Power to Terminate Trust

D. Power to Sell

E. Power Over Investment Policy

1. Settlor's Power to Assist Trustee in Investment Decisions

2. Power to Control Investment Decisions

3. Power to Require Retention of Specific Investments

4. Power to Invest in "Nonlegal" Investments

5. Power to Invest in Nonincome-Producing Property

6. Power to Invest in Life Insurance

7. Power to Invest in Mutual Funds

F. Power over Trust Accounting

G. Power to Allocate Receipts and Disbursements

H. Power to Pay Death Taxes and Administrative Expenses

I. Power to Create Additional Trusts

J. Termination of Power

K. Power to Elect to Take Against a Will

L. Power to Substitute Assets

M. Power of Custodian

N. Power of Executor

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Administrative Powers Provisions for Trusts and Wills

Bibliography

OFFICIAL

Statutes:

Treasury Rulings:

Cases:

UNOFFICIAL

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