Decanting Provisions
"Decanting" provisions can enable the trustee to effectively amend certain provisions of a trust (even if the trust is irrevocable) by decanting or transferring trust assets from an existing trust into a new trust created by the trustees. There are critical tax provisions that need to be analyzed prior to decanting any trust to ensure that the generation-skipping tax status of the trust is not disrupted.  Nonetheless, these decanting provisions can provide significant flexibility to the trustee to adapt to the current needs of the beneficiaries.

Power To Add Or Remove Beneficiaries
An irrevocable trust can be drafted to provide the trustee with the ability to add or remove beneficiaries.  Given the complex and changing dynamics of wealthy families today, this can be a very effective way to rewrite a trust agreement without jeopardizing the status of the trust from a transfer tax perspective.  It is important to note, however, that the existence of this power will cause the trust to be a grantor trust for income tax purposes.  

Incentive Trusts And Letters Of Wishes
If an individual feels strongly that he or she would like to promote certain behavior by trust beneficiaries, the individual may consider an "incentive trust" or a "letter of wishes" as part of the planning process.  A letter of wishes is a document in which an individual expresses to the trustee his or her philosophy about making distributions from a trust.  The letter, while not legally binding on the trustee, provides a general set of guidelines to aid the trustee in the management of the trust and determining the course of action that would be consistent with an individual grantor's intentions.  

In contrast to a letter of wishes, an incentive trust contains standards that are generally legally binding on a trustee.  An incentive trust is designed to mandate distributions to beneficiaries, but only if the beneficiaries meet certain criteria established in the trust. Specificity is the key to an incentive trust.  For example, an individual could create an incentive trust to encourage his or her children to work hard, by directing a matching distribution from the trust for every dollar the child earns.

Planning for Same-Sex Couples
Federal tax law does not recognize the marital deduction for estate or gift tax purposes for same-sex couples, so that a transfer by gift or at death from one partner to the other will be fully subject to the estate or gift tax just as if the transfer was made to any other non-spouse individual.  In contrast, an unlimited amount may be transferred between U.S. citizen spouses of an opposite sex marriage without triggering gift or estate taxes.  This certainly continues to put same-sex couples on an uneven playing field when compared to a husband and wife with respect to estate and gift tax treatment.

There are, however, some ways in which same-sex couples can make other arrangements to address estate issues.  For instance, life insurance trusts can be created for the benefit of the surviving partner funded with life insurance policies that are outside of the estate of the deceased partner.  The death benefit payable to the life insurance trust on an estate tax free basis could be used to effectively replace the assets that are payable to the IRS, as well as state taxing authorities, as a result of the death of a partner.  While this may be more costly than simply having bequests to a spouse qualify for the marital deduction, it is a relatively straightforward way to address the estate tax liability.

Summary
Because all families are different, and ever changing over the years, family advisors must honestly consider the unique aspects of the families they work with, and show the forethought to provide flexibility in their planning to deal with family circumstances as they may change.    

Edward A. Renn and N. Todd Angkatavanich are partners of Withers Bergman, LLP, and international private client law firm (www.withersworldwide.com).  They work in the firm's New York City and Greenwich and New Haven, Conn., offices. The authors would like to thank Bryan Galat, an associate at Withers Bergman LLP, for his valuable contribution to this article.