An IRS memorandum dealing with Crummey powers that we linked to in our February 27 Weekly may have implications for attorneys who create irrevocable grantor trusts to help clients qualify for Medicaid as well as achieve favorable tax outcomes, Pennsylvania ElderLawAnswers member Jeff Marshall has pointed out in his blog.
In its February 24, 2012, Memorandum 201208026, the IRS Office of Chief Counsel concludes that a couple who transferred property to an irrevocable trust but retained testamentary limited powers of appointment made a completed gift to the trust, and that therefore the full value of the transferred property is subject to gift tax.
Noting that attorneys may have a number of goals in setting up irrevocable trusts for clients of modest means -- including effectuating qualification for Medicaid and VA pension benefits, avoiding estate recovery and beneficial tax outcomes -- Marshall writes in the Marshall Elder and Estate Planning Blog: “Memo 201208026 suggests that lawyers should not rely solely on testamentary powers of appointment to obtain the desired favorable tax treatments. At the least, counsel should carefully consider including the Donor’s additional retention of income and/or lifetime dominion and control powers to avoid completing the gift. (Note that retention of trust income may be contraindicated depending on the particular client circumstances such as a potential need to apply for VA pension benefits).”
To read Attorney Marshall’s full blog post, click here.
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