Estate-tax flux could boost grantor trusts

Grantor trusts have a “swap power” that allows for a transfer of assets from the trust to the individual as long as something of equal value takes its place in the trust.

Feb 5, 2017 @ 12:01 am

By Greg Iacurci

With the federal estate tax in flux, advisers may want to consider planning strategies that afford some measure of flexibility.

For example, there's the grantor trust, a common type of irrevocable trust.

(More: What will the estate tax look like under Trump?)

Grantor trusts have a “swap power” that allows for a transfer of assets from the trust to the individual who set up the trust as long as something of equal value, such as cash, takes its place in the trust.

This may be a useful strategy as a client nears death, with a transfer of, say, $1 million of highly appreciated stock from the trust to the individual benefitting the estate via a step-up in tax basis at death, which occurs under the current tax regime. If the appreciated stock were to remain in the trust, it wouldn't receive a step-up in basis.

(More: 2016 tax returns determine 2018 Medicare premiums)

Swapping may also be a useful strategy under a Trump tax regime that levies capital gains tax at death. The swap power could be used in reverse, with $1 million of highly appreciated stock held by an individual pushed into the trust to avoid paying capital gains tax at death.

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