Probate & Trust Law Section Conference Manual ... - Minnesota CLE

to allow the beneficiary to pay off his student loans) is
taxable to the extent it exceeds the annual exclusion
($14,000 in 2013)?
(3) Should trust distributions only be charged back if they are
from principal or should income and principal distributions
be taken into account?
e. Do you want to take into account the time value of money, or
should a gift of $10,000 in 2013 result in a $10,000 charge back
many years later, regardless of the rate of inflation and the
appreciation (or depreciation) of the estate, the trust or the overall
market?
Once you have determined the client’s desires, it is time to draft language implementing
it. Simply providing that “each beneficiary’s share shall be adjusted to reflect the amount
of [gifts] [distributions] received by the beneficiary” could lead to interpretation
problems. There are several ways to charge back for prior gifts.
Charge-back Example. Assume the following facts: A received $1,000 of gifts, B
received $2,000 of gifts and C received no gifts. The estate or trust is worth $96,000. All
three options should result in each beneficiary receiving a total of $33,000 when gifts and
the trust distribution are added together.
Consider the following options, all of which lead to the same result:
“The remaining assets shall be
divided equally among A, B and C;
provided, however, the share for
each such person shall be reduced by
the amount of gifts made by me to
such person prior to my death, and
the amount of such reductions shall
be allocated equally among A, B and
C.”
Step 1: $96,000 divided among all
three = $32,000 each.
Step 2: A’s share is reduced $1,000
to $31,000 and B’s share is reduced
$2,000 to $30,000.
Step 3: The $3,000 reduction is
allocated equally $1,000 each: A
gets $32,000, B gets $31,000 and C
gets $33,000.
“There shall be added to the
remaining assets, for computation
purposes only, the total amount of
gifts I made to any one or more of
A, B and C prior to my death. The
remaining assets, plus such amounts
so added for computation purposes,
shall be allocated equally among A,
B and C. Each share so allocated to
any such person shall then be
reduced by the amounts added for
computation purposes with respect
to gift(s) to such person.”
Step 1: $3,000 added for
computation purposes, resulting in
$99,000.
Step 2: $99,000 divided by three =
$33,000 each.
Step 3: A’s share is reduced $1,000
to $32,000, B’s share is reduced
$2,000 to $31,000 and C’s share is
not reduced – it stays at $33,000.
“If the aggregate value of all gifts I
made to any of A, B or C is greater
than the aggregate value of all gifts I
made to any other of them, then I
give to each such person who
survives me (the “Beneficiary”) an
amount equal to the positive
difference, if any, between: (1) the
aggregate value of all gifts I made to
the person who received the largest
amount of gifts, and (2) the
aggregate value of all such gifts I
made to the Beneficiary. The
remaining assets shall be allocated
equally among A, B and C.”
Step 1: A gets $1,000 for shortfall
of his gift vs. B’s gift and C gets
$2,000 for shortfall of his gifts vs.
B’s gift.
Step 2: The remaining assets
($93,000) are divided equally
($31,000 each) so A ends up with
$32,000 ($1,000 + $31,000), B ends
up with $31,000 (0 + $31,000) and C
ends up with $33,000 ($2,000 +
$31,000).
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