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| Trusts |
Estate Tools for the Trusting
Thomas M. Kostigen
02/02/2004
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Even so, if the Strangi decision is upheld on appeal (the case is still before the courts), RMAs may look better and better. Citigroup Private Bank has an offering currently in the works, and Handler points out that trust companies are bringing themselves quickly up to speed on the product. Of course, some warn that RMAs may not hold up to IRS scrutiny. "There is no court case that says people are allowed to do them," notes James Brockardt at Wharton Valuation Associates in Princeton, N.J. However, even without an overt government blessing, Handler and others insist RMAs will be less subject to the IRS’s control strictures than are family limited partnerships. RMAs have binding agreements stipulating control and discretionary issues. "It’s truly arm’s length," Handler emphasizes. "Limited partnerships bear special scrutiny with the IRS because they are intrafamily arrangements subject to special scrutiny."
RMA backers also say they afford valuable flexibility in structuring an estate plan. "From a tax perspective, you can transfer at death or during life," Handler says. If you want to transfer assets to your children during your lifetime, you divide an RMA in two, he explains. Each account remains subject to the provisions of the original master account, so a child would have to wait out the term established when the account was opened before taking control of the assets. This has an additional benefit, Handler notes, "of kids not being able to go off and trade their account away."
RMA backers argue that they have other useful applications. These instruments can be used to extend the tax benefits of an individual retirement account, for example. IRAs defer taxes on investment gains until a person reaches 70.5 years of age and is forced to withdraw the assets. "If you have an IRA, and you take $8 million and put it in an RMA, then you shrink the value of the IRA," Fox observes. "Then the value of what you would have to take out would be reduced, and the transfer taxes would be reduced also."
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