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Pour Over Will | Durable Powers of Attorney Health and Assets | Revocable Trust | Irrevocable Trust | What You Shouldn't Do In Estate Planning
The Intentionally Defective Domestic Grantor Trust ("Ultra Trust")
USE - Estate Planning
Asset Protection
The Ultra Trust is a structure that is used because of its overall planning advantages. This is one
of those examples where as few as fifteen years ago, the Ultra Trust was simply not commonly
used. Today we see it used more and more as an active planning structure.
The Ultra Trust Program is designed to help eliminate Federal Estate Taxes, the probate process,
as well as give tremendous asset protection. The Ultra Trust has a number of characteristics that
are similar to the Foreign Security Trust or as it is more commonly known, the Asset Protection
Trust. In essence, the Ultra Trust is treated as a "Revocable Trust" for Federal income tax
purposes, and an "Irrevocable Trust" for asset protection and Federal estate tax purposes.
Because of this, the Ultra Trust is Federal income tax neutral. The Ultra Trust generally provides
the best of both worlds.
Unlike some other structures, there is no loss of the Federal income tax benefits associated with
real estate by placing real estate in an Ultra Trust. The Ultra Trust is treated as an Irrevocable
Trust for asset protection purposes, so it also provides significant protection for the assets that are
placed within the Ultra Trust.
Because of its Federal income tax attributes, the Ultra Trust is a suitable structure for ownership
of Subchapter "S" stock and provides significant asset protection.
We would like to emphasize that the Ultra Trust has been carefully drafted to accomplish a
number of objectives. The Ultra Trust will be classified as a "Grantor Trust" for Federal income
tax purposes. A client will therefore be able to claim the Federal income tax benefits associated
with the client's real estate or other appropriate assets transferred to the trust as if the client were
the true owner.
Conversely, for probate avoidance purposes, Federal Estate Tax purposes, and asset protection
purposes, the Ultra Trust will be treated as the separate owner of the assets it acquires. The Ultra
Trust has also been designed to allow the client to make gifts of the client's life insurance policies
to the trust. The proceeds from those policies, upon the client's death, will not be subject to
Federal Estate Tax. If the Ultra Trust is utilized for holding title to life insurance policies, it may
not be necessary to utilize a separate Insurance Trust.
The Ultra Trust is usually established by an initial gift from the client or someone else (of not
less than $2,500) to the trust. The trustee of the Ultra Trust must be an independent trustee who
is usually a close and trusted friend or may, under certain conditions, be a family member. The
function of the trustee is to administer the trust for the benefit of the trust's beneficiaries.
Generally, the beneficiaries are the grantor and the grantor's family.
Once the client has decided to use the Ultra Trust, it is important to carefully structure the
transfer of the client's assets to the Ultra Trust.
Keep in mind what the Ultra Trust accomplishes. The Ultra Trust can virtually eliminate any
Federal Estate Taxes. A possible potential down side of this planning is ensuring that any state
excise taxes or transfer (stamp) taxes due as a result of any of the transfers are not out of
proportion to the expected benefits. If there is a state excise or transfer (stamp) tax as a result of
transferring assets, you will need to review the use of the Ultra Trust within the plan.
Click here to view flow chart.
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