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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.
The Ultra Trust Program is designed to help eliminate Federal Estate Taxes, eliminate 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 owning real estate by placing real estate in an Ultra Trust. Because the Ultra Trust is treated as an Irrevocable Trust for asset protection purposes, 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.

The obvious decision that a client needs to make is to decide which of the client’s assets they want to place within the Ultra Trust’s unique provisions.  If the client decides to put any or all of their real estate within the Ultra Trust, the client will gift or sell the selected real estate to the Ultra Trust.

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 this 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 to the trust. The trustee of the Ultra Trust must be an independent trustee who is usually a close and trusted friend. 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.

Keep in mind what the Ultra Trust accomplishes. The Ultra Trust can virtually eliminate all Federal Estate Taxes and where applicable State estate and inheritance taxes. A possible potential down side to 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.

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