A significant new letter ruling, Ltr. Rul. 200944002, enables planners to provide clients with a strategy that offers not only asset protection, but significant potential estate tax savings and other advantages.
Though many, if not most, self-settled trusts are intended to be incomplete gift transfers (and thus includable in the settlor’s estate), Ltr. Rul. 200944002 provides planners with the opportunity to provide clients who have been hesitant to make large gifts (for fear of future needs) with a strategy that offers not only asset protection, but significant potential estate tax savings while at the same time the comfort of knowing that if the settlor requires some portion of the funds transferred, a trustee can provide for them.
It has been 12 years since Alaska adopted the first self-settled spendthrift trust legislation. Based on the law as it existed at that time, it seemed that a self-settled Alaska trust, under which the trustee other than the grantor could but was not required to distribute trust property to the grantor, would not be included in the grantor’s estate for federal estate tax purposes unless the grantor held some other interest or power over the trust. Developments since that time, such as Rev. Rul. 2004-64, have reinforced that conclusion. And Ltr. Rul. 200944002 seems now to be directly on point.