Problems in Springing the Delaware Tax Trap

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I'm really proud of this article, as it was published in the April 2018 edition of Trusts and Estates magazine, a prestigious legal publication. 

Taking into account the stratospheric $11.18 million federal estate tax exclusion enacted by the Tax Cuts and Jobs Act,1 most decedents are no longer subject to federal estate taxes. This means that many existing credit shelter trusts (and other irrevocable trusts) will no longer generate estate tax savings. Worse yet, these trusts have suddenly become counterproductive from an income tax point of view, because their assets generally don’t receive stepped-up basis treatment at the death of the surviving spouse.

An increasingly popular way to achieve basis step-up for credit shelter trusts involves springing the Delaware tax trap (the "Trap") under Internal Revenue Code Section 2041(a)(3).3 But, can the Trap be sprung in jurisdictions where local law permits trusts to last in perpetuity or for a very long stated period? Depending on one’s interpretation of the law, trusts in perpetual (or near-perpetual) jurisdictions may be precluded from using this strategy.

See Problems in Springing the Delaware Tax Trap for full article.