AICPA requests guidance on use of PTCs.The AICPA AICPA See American Institute of Certified Public Accountants (AICPA). has requested guidance on the estate, gift and generation-skipping transfer tax Example: Property is placed in a trust for the donor's child and grandchildren. The income may be "sprinkled" among the child and grandchildren in accordance with their needs and the principal of the trust will be distributed outright to the grandchildren following the child's death. consequences of using a family-owned private trust company (PTC (PTC, Needham, MA, www.ptc.com) Long a world leader in mechanical computer-aided design, manufacturing and engineering software, PTC, through acquisitions and reorganization, has transformed itself into a leading provider of Internet-based B2B solutions for discrete manufacturers. ) as the trustee of a family trust. Many families hold their wealth in trust, frequently in trusts that are intended to last for many generations. Over time, it becomes difficult to find successor trustees in whom the younger generations have a great degree of confidence. To minimize disruptive litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. and family disharmony, family-owned PTCs may be used; in this way, various segments of family members have a voice in governing the trust, and the trust can ultimately be responsive to the goals and needs of the family's various generations. The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. has raised concerns over a family's control of a trust when a PTC is the trustee. To address the Service's concerns, and to provide some degree of certainty for taxpayers that wish to use PTCs, the AICPA recommends that any future guidance: * Should clearly state that a trust grantor or beneficiary is not prohibited from serving on a PTC'S distribution committee, as long as adequate safeguards are in place to prevent the grantor or beneficiary from participating in decisions that, acting as an individual trustee, would have caused the trust's assets to be included in his or her estate. * Should include a safe harbor that would apply as long as the PTC's bylaws The rules and regulations enacted by an association or a corporation to provide a framework for its operation and management. Bylaws may specify the qualifications, rights, and liabilities of membership, and the powers, duties, and grounds for the dissolution of an prohibit a grantor or current beneficiary from participating in any discretionary distributions with respect to any trust of which they are a grantor or beneficiary while serving on the distribution committee. If the bylaws were later amended to eliminate this prohibition, the safe harbor would no longer apply and the PTC owners and directors would be at risk. * With the exception of control over discretionary distributions discussed, family members should be able to participate in ownership, as well as all other aspects of managing the PTC. Leslie S. Laffie, J.D., LL.M LL.M Legum Magister (Master of Laws) . |
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