Vol. 28, December 2011
This newsletter is not intended, and should not be used, as a substitute for legal advice.
Out of State Assets & Taxes
Trustee Duties
When you own real or personal property
located in multiple states, there may be laws in that
state imposing an inheritance tax (commonly
referred to as a “death tax”) on that property,
irrespective of whether you are a resident of that
state or another state. The inheritance tax, levied by
the state in which you are not a resident may be
imposed on both tangible personal property, such as
cars or furniture, and real property, such as a second
home or condominium unit. Therefore, it is
important to inform your estate planner that you
own property outside of your home state, such as a
condominium in Florida or jewelry in a safety
deposit box within an Illinois bank.
Some states may impose substantial
inheritance taxes, especially on tangible personal
property or real property that is easily identified and
located within that state. To limit this potential tax
liability, such property may be converted to
intangible property or have a modification to title
that may remove this tax liability. However, each
state’s laws are different; therefore, it is
recommended that you consult a knowledgeable
estate planning professional licensed in the state of
where the asset is located.
To highlight how this conversion may
work, consider the example of an Indiana resident
who conducts business frequently in New York and
also owns a small home there (real property). To
convert the real property, if the home is transferred
to an S Corporation and that same S Corporation
has a “real” business purpose, then the asset is
considered an intangible asset by the state of New
York. This then removes the state death tax liability
for the home owned by the Indiana resident.
There are similar ways to achieve
conversions in other states. If you have tangible
personal property or real property in another state, it
is recommended that you consult your estate
planning professional about any potential state
inheritance tax liability in the state in which the
property is located.
A trustee of a trust is a person who holds
property on behalf of a beneficiary. The trustee of a
trust is required by law to exercise a degree of care,
skill and attention to detail that is equivalent to how
the trustee would manage their own property.
However, this does not mean that the trustee may
manage the trust as an individual, they must manage
the trust as “the trustee of the named trust”. This is
illustrated when the trustee executes an agreement
for the trust in which they must sign as “trustee of
the named trust”, not in their individual capacity.
All actions taken by the trustee must be performed
in this manner. This duty attempts to eliminate
issues of self-dealing on the part of trustee as an
individual.
A trustee cannot gain personally through
their position as trustee. This means the trustee
cannot purchase assets from the trust or sell their
own property to the trust, even if the price is fair.
Similarly, the trustee may not sell assets from one
trust they administer to another trust they
administer. A trustee cannot borrow funds or make
loans to the trust, or use trust assets to secure a
personal loan. These same restrictions also apply to
indirect self-dealing through family or friends.
The trustee also has a duty to keep and
render accurate accounts and refrain from
commingling trust funds with personal funds. The
trustee must furnish information concerning trust
accounts when requested by a trust beneficiary.
While a trustee may designate some administrative
duties to others in administering the trust, such as
accounting, the trustee cannot delegate away all
their administrative duties. This ensures that the
trustee is in the best position to defend the trusts
goals and the trust investments for the beneficiary.
For more information on trustee duties, it is
advised you contact an estate planning professional.
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Austgen Kuiper & Associates, P.C. is a full service law firm
assisting clients in the areas of business/corporate law; wills,
trusts, probate, & elder law; litigation; land use; personal injury;
dui/traffic violations; and related areas. For more information or
for assistance, please contact Austgen Kuiper & Associates, P.C.