21 Year Deemed Disposition Rule

Trusts are often a wonderful tool to assist with sharing family wealth and ensure that taxpayers reach their estate planning goals. Speaking of Trusts, did you know that Family Trusts are subject to a deemed disposition of capital assets every 21 years? This is due to a rule specifically designed to discourage the indefinite deferral of taxes on accrued capital gains. There are apparent problems that come with this rule, some of which include the logistics of determining the applicable FMV to be reported as proceeds of disposition. From the taxpayer’s perspective, there is also a fundamental problem in that the 21 Year Rule creates an unfunded estate tax liability. This can lead to a surge in tax and other complications with regards to funding, as well as the potential of having a double tax on the same economic gain. For anyone who has a family trust which is getting close to the 21 year anniversary, we encourage you to look at life insurance on the lives of the beneficiaries.