Not all Sec. 67(e) expense are subject to 2% haircut. The greater the 67(e) expenses that can reduce gross income by avoiding the limitation, make more likely to benefit from a deduction. Also, impacts trusts AMT. Final regulations apply for all years beginning after May 9, 2014. Investment advisory fees incurred for an investment objective unique to a trust may be protected. Fiduciary costs, such as probate and accountings, are not commonly incurred by individuals. Regulations address how ordinary estate transmission don’t expenses should be treated for IRC Sec. 67(e) purposes. How do you handle costs of deeds and assignment documents? What about sales expenses if a sale is made to pay taxes that would not have to be paid if we were not dealing with an estate? There may be future guidance to address this. SEC vs. Wyly. This was not a tax case but rather an SEC Disgorgement case. In 1990s two brothers created an Isle of Mann trust and intended the trusts to be non-grantor trusts. They took this position and did not report income on US tax returns. Advisers recommended not to make required SEC disclosures. They didn’t. The SEC eventually considered these provisions and won a civil enforcement action against the brothers. The problem the SEC faced was that there were no investment profits so how could they punish the brothers? The court decided if the brothers had filed as required with the SEC and the tax savings would not have occurred had they reported properly. So the amount of tax savings was determined to be the amount of profits to be reached as a result of the SEC violation, and the amount to be disgorged. If similar facts came before the court in a tax case, as to whether a trust is a grantor trust or whether trust property should be included in the estate, it could be grantor’s problematic. The basis for concluding that the trust was a grantor trust was based on the degree of control the grantors exercised over the trust decisions even though they had no legal right to do so. The trustees were required to take direction from trust protectors
Not all Sec. 67(e) expense are subject to 2% haircut. The greater the 67(e) expenses that can reduce gross income by avoiding the limitation, make more likely to benefit from a deduction. Also, impacts trusts AMT. Final regulations apply for all years beginning after May 9, 2014. Investment advisory fees incurred for an investment objective unique to a trust may be protected. Fiduciary costs, such as probate and accountings, are not commonly incurred by individuals. Regulations don’t address how ordinary estate transmission expenses should be treated for IRC Sec. 67(e) purposes. How do you handle costs of deeds and assignment documents? What about sales expenses if a sale is made to pay taxes that would not have to be paid if we were not dealing with an estate? There may be future guidance to address this. SEC vs. Wyly. This was not a tax case but rather an SEC Disgorgement case. In 1990s two brothers created an Isle of Mann trust and intended the trusts to be non-grantor trusts. They took this position and did not report income on US tax returns. Advisers recommended not to make required SEC disclosures. They didn’t. The SEC eventually considered these provisions and won a civil enforcement action against the brothers. The problem the SEC faced was that there were no investment profits so how could they punish the brothers? The court decided if the brothers had filed as required with the SEC and the tax savings would not have occurred had they reported properly. So the amount of tax savings was determined to be the amount of profits to be reached as a result of the SEC violation, and the amount to be disgorged. If similar facts came before the court in a tax case, as to whether a trust is a grantor trust or whether trust property should be included in the grantor’s estate, it could be problematic. The basis for concluding that the trust was a grantor trust was based on the degree of control the grantors exercised over the trust decisions even though they had no legal right to do so. The trustees were required to take direction from trust protectors