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

First, they will want one or more grantor trusts as gifting vehicles. The difference in tax
rates between individuals and trusts has become even more significant in light of the early
application of a 39.6% rate on trust taxable income. 12 For that reason, it will almost always be
better for undistributed income to be taxed to the grantor rather than to the trust. Grantor
trusts are also good vehicles for effecting asset sales, whether directly or under the installment
method.
Second, for extra planning security, these clients will want to make use of defined value
gifts. See the discussion starting on page 12 of these materials.
Finally, for clients who still have some or all of their applicable exclusion amounts
available, a menu of various available strategies include the following:
• Large gifts to grantor trusts, followed by loans or sales by the grantor
• Large gifts to dynasty trusts
• Gifts of qualifying income interests from QTIP trusts
• Taxable gifts (leveraging the “tax‐exclusive” nature of the gift tax)
• Grantor Retained Annuity Trusts
• Low‐interest loans
• Lifetime credit shelter trusts (aka “spousal lifetime access trusts”)
12 Some suggest setting up grantor trusts sooner rather than later, as part of the President’s budget proposal has
called for the inclusion of assets held by a grantor trust in the grantor’s gross estate even where the trust would
otherwise qualify as a “defective grantor trust.” If Congress were to enact such a rule, one might fairly guess it
would apply prospectively, though certainly there is no guarantee of this.
13