Blog Posts
Estates and Trusts
Why a Trust Can Be Essential When Planning for a Family Vacation Home
A family home often carries value far beyond its market price. It may be the place where generations gathered for holidays, summers, milestones, and ordinary moments that became family memories. But when that property is transferred without careful estate planning, even a well-intentioned decision can produce a result no one expected. Consider the following real-life example. Jane owned a home at the Jersey Shore that had been in her family for more than 100 years. She viewed herself as the steward of the property and wanted it to remain available for future family gatherings. Her only daughter, Rachel, was close to Jane and seemed like the natural person to take over that role someday. Jane asked her former estate planning attorney whether she should transfer the shore house to a trust for Rachel’s benefit. She was told that a trust might create additional administrative burdens and expenses. Instead, Jane signed a deed transferring the property directly to Rachel during Jane’s lifetime. At the time, the direct transfer appeared simple, inexpensive, and practical. That decision created two significant issues. First, it created a tax issue: because Rachel received the property as a lifetime gift, Rachel generally took Jane’s carryover basis in the property rather than receiving a new basis equal to the property’s fair market value. Second, it created a control issue: once the property was titled in Rachel’s individual name, Jane no longer controlled what would happen to the shore house if Rachel died, changed her estate plan, married or divorced, encountered creditor issues, or simply made different decisions about the property. For the next few years, the family carried on as though nothing had changed, leaving Jane with the comfort of believing she had made the right decision. Sadly, a little more than five years later, Rachel died. Rachel had lived modestly, rented an apartment, and accumulated only limited savings. Under Rachel’s Last Will and Testament, she left her estate to her close friend, Michael. Jane initially did not focus on that provision because she did not think of the shore house as part of Rachel’s estate in any meaningful way. The following spring, Jane drove to the shore house, as she had done every year, with her car packed for the start of the summer season. When she arrived, her key no longer worked. A car she did not recognize was in the driveway. Confused, Jane knocked on the door. Michael answered and explained that he now owned the shore house because Rachel had left all of her assets to him. Jane then realized the critical consequence of the earlier deed: by transferring the house outright to Rachel, Jane had made the property part of Rachel’s estate. Rachel’s Will controlled where the property went next. Of course, Jane had not intended to give Michael the family shore house. Rachel likely had not intended that result either. But because the property had been titled in Rachel’s individual name, and because Rachel’s Will left her assets to Michael, Jane no longer had any legal right to the property. The outcome was devastating. Jane had lost a home that generations of her family had cherished. She also faced the difficult task of explaining to her siblings, nieces, and nephews how a property entrusted to her care had passed outside the family. When Jane contacted us to see if we could help, unfortunately, there were few viable solutions. This is exactly the kind of problem thoughtful trust planning can help prevent. Jane could have transferred the shore house to a trust for Rachel’s benefit, with clear instructions about who could use the property, who would manage it, how expenses would be paid, and what would happen at Rachel’s death. Depending on the structure, a properly drafted trust may also be designed to avoid unnecessary administrative complexity. In many estate plans, a trust is a control, continuity, and protection tool. It can help keep property within the family, protect beneficiaries from unintended consequences, address creditor and divorce concerns, and provide a structure for long-term management of emotionally significant assets. Key planning lesson: transferring property outright is not always the simplest solution when the goal is to preserve a family asset. Before signing a deed, families should consider what happens if the recipient dies, divorces, has creditor issues, changes their estate plan, or simply has different ideas about the property’s future. They should also understand the income tax consequences. A lifetime gift of appreciated real estate generally does not produce the same step-up in basis that may be available when property is inherited at death. As a result, the recipient may take the donor’s low basis and face greater capital gains tax exposure if the property is later sold. For families with vacation homes, inherited real estate, or other legacy assets, the right plan should address legal ownership, family expectations, and tax basis. That may include a revocable trust, irrevocable trust, limited liability company, use agreement, maintenance fund, buyout mechanism, or other planning structure tailored to the family’s goals. The best solution depends on the family’s objectives, the property’s appreciation, creditor and divorce concerns, administrative tolerance, and desired tax result.
July 30, 2026
Estates and Trusts
Maximizing Wealth Preservation with a South Dakota Special Spousal Trust
If you are married, regardless of where you live, you should consider adding a valuable tool to your estate plan: a South Dakota Special Spousal Trust, also known as a Community Property Trust (CPT). A CPT can help couples maximize tax benefits and plan for the future. Moreover, these trusts offer excellent flexibility: they can be irrevocable or revocable and neither you nor your property need to be located in South Dakota! The Big Advantage: Step-Up in Basis One of the most compelling reasons couples use a CPT is the step-up in basis. When assets—such as stocks, real estate, or business interests—are held in this type of trust, the surviving spouse typically receives a 100% step-up in basis at the first spouse’s death. In non-community property states, the surviving spouse often receives only a 50% step-up in basis, resulting in a higher capital gains tax burden if the asset is sold during the surviving spouse’s lifetime. In most common law states, like Pennsylvania and New Jersey, property acquired during marriage is either separate or jointly owned, depending on title. If an asset is jointly owned, spouses typically receive only a partial step-up in basis at death. By contrast, under the South Dakota regime, property transferred to a CPT is treated as community property for purposes of basis step-up—leading to a 100% step-up at the first spouse’s death. Couples from common law states can opt into a community property-type system for particular assets and access the step-up benefit. Ownership and rights are defined by the trust agreement and South Dakota law rather than the law of the state in which the couple resides or where the property is located. Who Benefits Most from a South Dakota CPT? While any married couple can take advantage of a South Dakota CPT, this trust is particularly suited for couples who: Are in a long-term, stable relationship so that the trust assets will truly get the step-up at deathBecause CPTs can significantly affect how assets are handled during a divorce — and the 100% basis step-up only applies if you remain married — avoiding divorce is essential. Own property that could benefit from a 100% step-up in basis. Such property includes:Substantially appreciated assets—owned either by one or both spouses. Assets that the surviving spouse does not want to manage and may immediately want to sell. Property that is highly depreciated, has a negative basis, or is collectible. The Role of a South Dakota Trustee One or both spouses may serve as trustees of the South Dakota CPT, but the trust agreement must designate at least one qualified South Dakota trustee — either a resident individual or a trust company/bank. Bottom Line A South Dakota Special Spousal/Community Property Trust gives married couples a powerful way to reduce taxes and strengthen their estate plan. By leveraging the full step-up in basis, this trust can help minimize capital gains and create long-term certainty for your family. Working with an experienced attorney and a South Dakota trustee ensures you maximize these benefits while safeguarding your legacy.
December 1, 2025
Estates and Trusts
How to Have "The Talk" About Estate Planning with Your Parents
Estate planning is one of the most important conversations you’ll ever have with your parents. Discussing wills, trusts, and end-of-life wishes can feel uncomfortable, but having a clear plan in place can save your family from confusion, conflict, and stress down the road. If you’ve been putting off the conversation, you’re not alone. Many adult children hesitate to bring up estate planning for fear of upsetting their parents or appearing greedy. But the truth is, approaching the topic with care and respect can actually strengthen family bonds and ensure that everyone’s wishes are honored. Moreover, learning about your parents’ plan may lead to additional productive conversations—if you are independently wealthy or have creditor concerns, you may not want your parents to leave you assets outright—you can encourage your parents to optimize their planning through the use of trusts or other alternatives. Here’s a step-by-step guide to having "the talk" about estate planning with your parents — without awkwardness or tension. Find the Right Time and Setting Timing and environment matter when discussing sensitive topics. Choose a time when everyone is relaxed and not rushed. A calm and private setting will help everyone feel more comfortable and open. Tip: If you’ve done your own estate plan, then an easy way to start the conversation naturally could be: “I’ve been working on my own estate plan and realized how important it is. Have you thought about yours?” Approach It with Care and Empathy This isn’t about money — it’s about protecting your parents’ wishes and avoiding family disputes later. Make it clear that your goal is to understand and respect their choices, not to control or influence them. Instead of saying, “We need to talk about your will,” try: “I want to make sure we’re prepared as a family if anything happens.” “It’s important to me that your wishes are honored — can we talk about how you’d like things handled?” By framing it as a conversation about their legacy and peace of mind, you’ll help them feel more at ease. Ask Open-Ended Questions Rather than diving straight into the details of their will or assets, ease into the conversation by asking thoughtful, open-ended questions like: “Have you thought about how you’d like your estate handled?” “What matters most to you when it comes to your legacy?” “If something were to happen, how would you want us to handle things?” Give them time to process and respond without pressure. If they hesitate or seem uncomfortable, reassure them that you’re there to listen, not to push. If they don’t feel comfortable discussing the details with you, offer to help them find an experienced estate planning attorney. Discuss the Essentials Once the conversation is flowing, gently introduce key estate planning elements. If they permit you to do so, include an estate planning attorney in the dialogue: Will: Do they have a will? Is it up-to-date and legally sound? A will ensures that their assets are distributed according to their wishes and can prevent costly legal battles. Trusts: Trusts can offer more control over how and when assets are distributed while helping avoid probate and potentially reducing estate taxes. Ask questions like: “Have you considered setting up a trust to protect certain assets?” “Would you want to make sure certain funds are distributed over time rather than all at once?” “Would a revocable or irrevocable trust make sense for you?” Many people don’t realize how flexible and powerful trusts can be for protecting assets and reducing tax burdens. Estate Taxes: Depending on your parents' estate size, estate taxes could significantly reduce the amount passed on to heirs. Questions to consider: “Have you spoken with an advisor about strategies to minimize estate taxes?” “Would you like to explore options like gifting or charitable donations to reduce tax liability?” “Should we look at how setting up a trust could reduce taxes?” Understanding how estate taxes work can help you and your parents make more informed decisions about structuring their estate. Power of Attorney: Have they appointed someone to make financial or healthcare decisions if they’re unable to? A durable power of attorney can give someone authority to manage their financial affairs, while a healthcare power of attorney ensures their medical wishes are respected. Healthcare Directives: Do they have a living will or healthcare proxy to outline their medical wishes? These documents help guide medical decisions if they’re unable to communicate. Beneficiaries: Are their assets (e.g., life insurance, retirement accounts) designated correctly? Beneficiary designations can override what’s written in a will, so they need to be up to date. Executor/Trustee: Have they named someone to carry out their wishes? This person will handle closing accounts, distributing assets, and working with the courts if needed. This isn’t about getting into the nitty-gritty details; it’s about ensuring the basics are covered, and that someone knows where to find important documents. Offer to Help (But Respect Their Decisions) Your parents might not have all the answers. Offer to help them get organized by suggesting they meet with an estate planning attorney. You could say: “Would you like me to help you find an attorney?” “If you want to put together a list of accounts and documents, I’m happy to help.” Of course, their estate plan is ultimately their decision. Your role is to support, not control. Keep the Conversation Going Estate planning isn’t a one-and-done conversation. Circumstances change — marriages, divorces, births, deaths, and financial shifts all impact an estate plan. Check-in periodically with your parents to see if they need to make updates or have questions. Keeping an open line of communication will help avoid misunderstandings later. Thank Them for Their Trust Talking about estate planning requires vulnerability — from both sides. Thank your parents for opening up and trusting you with such personal matters. Let them know how much it means to you that they’re taking steps to protect their legacy and make things easier for the family. Follow Up with Next Steps Once the conversation is underway, help your parents take action: Encourage them to meet with an estate planning attorney. Suggest setting up a trust if it makes sense for their situation. Help them gather financial records, account details, and important documents. Work with them to create a list of assets and liabilities. Following up shows that you’re invested in helping them protect their legacy — without pushing them to make uncomfortable decisions. Final Thoughts Discussing estate planning with your parents isn’t easy — but it’s one of the most loving things you can do as a family. By approaching the conversation with empathy, patience, and respect, you’ll help ensure that your parents’ wishes are honored and that your family is prepared for whatever the future holds.
March 20, 2025
Estates and Trusts
Corporate Transparency Act Reporting for Covered Entities Owned by Trusts
We are now six months into the new compliance regime instituted by the Corporate Transparency Act (CTA) and practitioners should be aware of the reporting obligations to assist clients with required disclosures. This article limits its focus to trusts. Specifically, estate planners should be able to advise their clients as to which parties to a trust need to report under the CTA when a trust owns business interests. Reporting Requirements Effective January 1, 2024, the CTA requires that “reporting companies”[1] disclose to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) certain information about the company including, but not limited to, its beneficial owners. Trusts themselves generally are not considered reporting companies because the CTA only applies to entities created by filing an organizational document with a state authority such as a secretary of state; however, when a trust owns interests in a reporting company, all parties associated with the trust may be considered beneficial owners of the reporting company. The CTA defines a beneficial owner as any individual who either: (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of a reporting company’s ownership interests.[2] Individuals can substantially control or own a reporting company through trust arrangements. Substantial control is broadly defined[3], and there is no limit to the number of individuals associated with a trust who may need to be reported for exercising substantial control, and thus considered a “beneficial owner.” Given the far-reaching meaning of substantial control, any number of individuals that may constitute a beneficial owner with respect to a trust, including the trustee, beneficiary, grantor, or other individuals such as trust protectors, distribution trustees or advisors, investment trustees or advisors, members of the trust protector committee, holders of a power of appointment, or other power holders, whether directly or indirectly through contracts, arrangements, understandings, relationships, or otherwise. If a trust owns or controls at least 25 percent of a reporting company’s ownership interests or exercises substantial control over a reporting company, then the parties to the trust that meet the following conditions are considered beneficial owners and must provide beneficial ownership information to FinCEN: Any party to the trust who: Has authority to vote 25 percent or more of the interests of the reporting company. Has authority to dispose of trust assets. Has authority to remove and replace trustees or direct investments. Is the sole permissible recipient of trust income and principal. Has the right to demand a distribution. Has the right to withdraw substantially all of the trust assets. Has the right to otherwise control the trust’s activities. Has the right to revoke the trust or withdraw trust assets. Has the right to swap assets with the trust and reacquire assets from the trust. Once it is determined who is a beneficial owner, such parties must furnish to the reporting company their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification along with a copy of the identification document. Any time this information changes, the reporting must be updated. Corporate Trustees If the beneficial owner is a legal entity such as a corporate trustee, the reporting company should determine whether any of the corporate trustee’s individual beneficial owners indirectly own or control at least 25 percent of the ownership interests of the reporting company through their ownership interests in the corporate trustee. The following examples are provided by FinCEN: If an individual owns 60 percent of the corporate trustee of a trust, and that trust holds 50 percent of a reporting company’s ownership interests, then the individual owns or controls 30 percent (60 percent × 50 percent = 30 percent) of the reporting company’s ownership interests and is, therefore, a beneficial owner of the reporting company. If the same trust only holds 30 percent of the reporting company’s ownership interests, the same individual corporate trustee owner only owns or controls 18 percent (60 percent × 30 percent = 18 percent) of the reporting company, and thus is not a beneficial owner of the reporting company by virtue of ownership or control of ownership interests. The reporting company may, but is not required to, report the name of the corporate trustee in lieu of information about an individual beneficial owner only if all of the following three conditions are met: The corporate trustee is an entity that is exempt from the reporting requirements; The individual beneficial owner owns or controls at least 25 percent of ownership interests in the reporting company only by virtue of ownership interests in the corporate trustee; and The individual beneficial owner does not exercise substantial control over the reporting company. It may also be necessary to consider whether any owners of, or individuals employed or engaged by, the corporate trustee exercise substantial control over a reporting company. The factors for determining substantial control by an individual connected with a corporate trustee are the same as for any beneficial owner. Exemptions from the Definition of Beneficial Owner When any of the following individuals qualifies for an exception, the reporting company does not have to report that individual in its beneficial ownership information report to FinCEN. Minors (Parent or legal guardian of the minor must report instead) Nominees, intermediaries, custodians, or agents Remainder beneficiaries (Once the individual inherits the interest, this exception no longer applies, and the individual may qualify as a beneficial owner) Creditors Penalties for Noncompliance While attorneys and beneficial owners are not directly responsible for filing reports with FinCEN—the onus falls on the reporting company itself—attorneys should be prepared to advise their clients whether a trust falls within the purview of the CTA and which parties associated with a trust must provide beneficial ownership information. Penalties for failing to comply with the CTA may be steep. Parties to a trust who are considered beneficial owners must provide the reporting company with complete and accurate beneficial ownership information. If an individual willfully fails to do so, an enforcement action may be brought against such party because someone who willfully causes a reporting company’s failure to submit complete or updated beneficial ownership information to FinCEN is in violation of the CTA. Violations can result in fines of $500 per day, up to $10,000 (both adjusted for inflation), and imprisonment for up to two years. Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submits an updated report correcting the inaccurate information within ninety days. Conclusion The beneficial owner information reporting analysis is complex and must be done on a case-by-case basis. A practitioner must review the extensive CTA information published on FinCEN’s website. There is no doubt that clients with trusts and trust-owned businesses will have questions about CTA compliance. Reprinted with permission from the Summer 2024 edition of The Pennsylvania Bar Association's Real Property, Probate & Trust Law Section newsletter. All rights reserved. Further duplication without permission is prohibited. [1] Reporting companies—defined as any company with twenty or fewer employees formed by filing with the Secretary of State or equivalent official—created or registered prior to January 1, 2024, have until January 1, 2025 to file an initial report; reporting companies created or registered after January 1, 2024 and before January 1, 2025, will have ninety days after creation or registration to file a report. Entities created on or after January 1, 2025 will have 30 days to submit the reports to FinCEN. The CTA exempts around two dozen categories of entities, including companies that are publicly-traded; have more than twenty full-time US employees; filed a previous year’s tax return showing more than $5 million in gross receipts or sales; have an operating presence at a physical US office location; operate in a regulated industry, such as banking, utilities, or insurance, that already imposes similar reporting requirements; or are subsidiaries of exempt organizations. The exemptions, which generally include larger companies already subject to regulation, underline the primary purpose of the CTA: to combat money laundering and other illicit activities conducted via small, private, and anonymous shell companies. [2] There are other nuances to this rule if no single owner owns more than 25%. [3] An individual or trust exercises substantial control over a reporting company if the individual or trust meets any of four general criteria: (1) the individual is a senior officer; (2) the individual or trust has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual or trust is an important decision-maker; or (4) the individual or trust has any other form of substantial control over the reporting company.
August 12, 2024
Estates and Trusts
Historic Increase to Your Lifetime Exclusion from Federal Estate Taxes for 2023
Ironically, there is good news for some families due to rising inflation for gift and estate planning purposes. As a result of inflation adjustments built into federal estate tax laws, your lifetime exclusion from federal estate taxes is set to rise from $12.06 million per person in 2022 to almost $13 million in 2023. This is a total exclusion amount of almost $26 million per married couple [The inheritance tax rules, if any, for the state where you reside vary from state to state and are not discussed in this article]. Specifically, according to recent reports, in 2023 the estimated inflation adjustment will be $860,000, resulting in an aggregate exclusion amount of almost $13 million per person ($12,060,000 plus $860,000 = $12,920,000). This is a remarkable increase when compared to the 2022 inflation adjustment increase of $360,000, at that time the largest on record. By comparison, the inflation adjustment for 2016 was a mere $20,000. Additionally, the annual gift tax exclusion is set to rise from $16,000 per donee in 2022 to $17,000 per donee in 2023. This means you can gift up to $17,000 to an unlimited number of individual recipients without incurring gift tax consequences or reducing your estate tax lifetime exclusion. High-net-worth individuals will benefit from the inflation adjustments because they can move significant assets out of their taxable estates before the scheduled reduction of the exclusion amount on January 1, 2026, when the exclusion amount will drop by a staggering 50%. For example, in 2026, a married couple will go from being able to gift nearly $26 million free of federal estate tax to only being able to gift $12 million (adjusted for inflation) free of federal estate tax. Acting now to take advantage of the historically high exemption could save your family millions in federal estate taxes. Note: If you die before 2026, under the portability rules, your surviving spouse can carry over your unused exclusion to the surviving spouse’s federal estate tax return; otherwise, your exclusion is permanently lost. An individual who wants to take advantage of the current tax laws before they expire may loan their stock portfolio to an intentionally defective grantor trust for the benefit of the individual’s spouse or children in exchange for a promissory note that can be forgiven in 2025 — the eve of the tax law changes — using the exclusion amount before it disappears. Couples will typically consider a trust for a spouse to preserve access to the trust portfolio during the spouse’s lifetime as the trust beneficiary. In conclusion, if you expect that your taxable federal estate will be more than $6 million (adjusted for inflation) for a single individual or $12 million (adjusted for inflation) for a married couple, you should consider the federal estate tax benefits to your heirs by engaging in estate and gift tax planning. Please get in touch with Danielle Friedman or Herb Fineburg with any questions or additional estate planning techniques to reduce your taxable estate and preserve your lifetime exclusion.
October 10, 2022
