State income taxation of trusts: new case creates uncertainty

Article Abstract:

The District of Columbia Court of Appeals complicated state taxation of trusts by upholding the constitutionality of a statute permitting taxing trust income. Prior to this 1997 ruling, courts usually followed the Missouri Supreme Court's 1987 decision, in which a trust created under a Missouri resident's will was administered in Illinois and was not subject to Missouri taxes. Since the District of Columbia appellate court unwisely departed from the Missouri decision, trustees should continue to challenge trust taxation when trustor residency is at issue.

Washington, D.C., State taxation, states

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Apparent drafting error in TRA '97 creates problem for estates selling appreciated property

Article Abstract:

IRC section 1223(11) was inadvertently omitted from amendments in the Taxpayer Relief Act of 1997 resulting in a disproportionately higher capital gains rate for appreciated estate property. The reduced 20% rate for 18-month long-term capital gain is not available to appreciated estate property which continues to be deemed to be held for one year and is taxed at a 28% rate. The technical amendment should be enacted by early 1998, but,in the interim, administrators should notify beneficiaries and continue to manage the estate with reasonable prudence.

Taxation, Decedents' estates, Valuation, Real property, Real estate appraisal, Capital gains tax

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New ruling provides more flexibility in removal of trustees

Article Abstract:

Rev. Ruling 95-58, issued in response to the Estate of Wall decision and replacing unpopular Rev. Rul. 77-182, adds flexibility in removing and replacing trustees. The ruling means trustees' tax-related powers will not be imputed to settlors and beneficiaries will not have trust assets included in their estates due to trustee removal powers. A ruling more consistent with the Wall case should be issued to eliminate Rev. Rul. 95-58's use of the IRS income tax standard to determine estate tax consequences.

Powers and duties, Estate planning

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