Trust Decanting: Income and Transfer Tax Ramifications and Reporting

Trust decanting--the distribution of trust property from one trust to another--is a popular and frequently utilized vehicle for keeping current and tax-efficient estate plans. Despite the growing prevalence of decanting as a strategy, the IRS has not provided authoritative guidance on proper tax reporting treatment of decanting transactions. Indications are that a definitive statement may not be forthcoming any time soon.

In addition to notification requirements, tax advisers and compliance professionals must deal with several critical issues in reporting decanting transactions. Determining whether the second trust should be treated as an entirely new trust or simply as a continuation of the first trust has significant reporting consequences.

Another critical issue is the treatment when the decanting may generate gain recognition, such as in circumstances of distributions of negative-basis assets or creating new powers of appointment in the second beneficiary trust. Advisers must be sure to address the new vs. continuation question in reporting decanting transactions.

Listen as our experienced panel provides a thorough and practical guide to the tax reporting challenges and opportunities of decanted trusts.

1. IRS guidance on decanting transactions
2. Notice requirements
3. Continuation of existing trust vs. the creation of a new trust
4. Gain recognition scenarios
5. Changing of situs
6. Filing requirements

The panel will review these and other essential questions:

• Under what circumstances is it preferable to treat the recipient trust as an entirely new trust rather than a continuation of the existing trust?
• What is the impact of a decanting on tax attributes?
• What decanting circumstances require gain recognition to either the distributing trust or the beneficiary/recipient trust?
• What elections are available regarding gain recognition of decanted assets?

Learning Objectives

After completing this course, you will be able to:

• Recognize challenges in reporting decanting transactions
• Identify existing authority for treating decanted trusts as continuations of existing trusts
• Ascertain scenarios where taxable gain exists in decanting transactions, either by the first trust or the receiving trust
• Discern appropriate gain under Section 1001 on distributions of negative-basis assets where recourse debt is involved
• Recognize what decanting events trigger additional filing requirements

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).