Working With Your Fiduciary ClientBy: Catherine M. Taylor, ESQ.Principal, Citrin Cooperman

June 2016

Types Of Fiduciaries

• Executor/Administrator/Personal Representative• Trustee• Guardian of the Property/Conservator/Committee

“Types” Of Fiduciaries

• Professional Fiduciary • Professional as Fiduciary• Family Member as Fiduciary

Executor - Considerations• Cash needs of the Estate• Timing of Distributions• Types of Distributions –

• Specific• In Kind• Cash

• Income Tax Planning

True or False?

Everything an heir receives from an estate is tax free?

Pecuniary DistributionBequest of a specific amount:“$2,000 to my son, Matt, and the rest, residue and remainder, to my daughter, Candace.”

• Matt is Pecuniary*Distribution• Candace is Residuary Distribution

*A Pecuniary Distribution made with appreciated assets may trigger capital gains recognition at Estate/Trust level

DNI – Distributable Net Income

A distribution which carries out income to the beneficiary, resulting in an income tax deduction for the Estate or Trust, and reportable income tax for the beneficiary.

Pecuniary DistributionBequest of a specific amount:“$2,000 to my son, Matt, and the rest, residue and remainder, to my daughter, Candace.”

• Matt is Pecuniary Distribution – No DNI (usually)• Candace is Residuary Distribution - subject

to DNI

Trustee – Types of Trusts

• Grantor – all income is picked up by the Creator of the Trust on his/her personal income tax returns.

• Simple – all ordinary income must be distributed at least annually.

• Complex – income may be distributed.

Grantor Trust• Look for “Grantor Trust” provisions, IRC § 671-679 (most common – the power, in a non-fiduciary capacity, to substitute property)• Grantor Trusts are always taxed to the Creator of

the Trust.

Simple Trust• All ordinary income is subject to DNI• Capital gains may be subject to DNI if so elected

(if permissible under agreement or state statute)• DNI deduction is applied, even if distribution was

not actually made.

Complex Trust• All non-Pecuniary distributions are subject to

DNI.• Capital gains may be subject to DNI if so

elected (if permissible under agreement or state statute)

• DNI is only applied to actual distributions, and may be allocated to specific beneficiaries

663(b) – The 65 Day Rule• What is it?• Why would my client need to use it?• How does my client report it?• What if my client makes a mistake?

Trustee - Considerations• Cash needs of the Trust• Timing of Distributions• Types of Distributions –

• Specific• In Kind• Cash

• Income Tax Planning

Prudent Investor Rules

What Can I Buy?What Can I Hold?

Take Aways• There are complex rules governing the assets held

by fiduciaries on behalf of the beneficiaries of Estates, Trusts and Guardianships.

• Most fiduciaries do not understand them.• The Financial Advisor should insist on interacting

with the Fiduciary’s attorney or accountant to make sure the Fiduciary does not violate those rules.

ContactCatherine M. Taylor, ESQ.Principal – Citrin Cooperman P: 212.697.1000E: ctaylor@citrincooperman.com