CHECKLIST: 2017 Tax Act & Recent Developments

By Martin M. Shenkman, CPA, MBA, PFS, AEP (Distinguished), J.D.

Tax planning concept

Summary: The 2017 Tax Cut and Jobs Act has changed almost every aspect of planning.  Consider the following.

√ Sec. 199A: The 20% QBI deduction applies for 2018 – 2025. Consider the sunset of this tax bennie when evaluating the cost of planning to enhance whatever benefits you can get. Example: Before restructuring a business, will the payback over the years remaining be worth the cost?

√ Charity: The new doubled standard deduction may eliminate any tax benefit from donations. Consider setting up a non-grantor trust to salvage that deduction. Example: You create an irrevocable trust naming a family member as trustee. Beneficiaries are a list of charities you donate to and all descendants. You gift $250,000 to the trust and it earns 4% or $10,000. The trustee donates it to the charities listed and the trust realizes a $10,000 charitable deduction that offsets the income. That’s because trusts don’t have a standard deduction. Meanwhile you still get the $24,000 standard deduction. trustee. Beneficiaries are a list of charities you donate to and all descendants. You gift $250,000 to the trust and it earns 4% or $10,000. The trustee donates it to the charities listed and the trust realizes a $10,000 charitable deduction that offsets the income. That’s because trusts don’t have a standard deduction. Meanwhile you still get the $24,000 standard deduction.

√ Trust Goals: The three goals many will need for irrevocable trusts are: (1) completed gift to use some of your temporary exemption, (2) preserve access to funds given, and (3) non-grantor trust status to capture income tax benefits like the charitable √ S Corporations: With the rush to use non-grantor trusts be careful if you have S corporation stock. If a trust owns S corporation stock, forming a non-grantor trust (or the conversion from a grantor trust to a non-grantor trust) will require conforming to the qualified Subchapter S trust (“QSST”) or electing small business trust (“ESBT”) requirements. It may be preferable for the donee trust to be characterized as a grantor trust rather than meeting QSST or ESBT requirements.

√ Life Insurance Trusts: Life insurance is commonly held in trust. It still should be even if there is no estate tax benefit to protect the potentially large death benefit (and perhaps growing cash value). Be careful in the post-2017 Tax Act rush to non-grantor trusts. A trust holding life insurance may be characterized as a grantor trust if trust income can be used to pay life insurance premiums on insurance on the grantor’s life. The IRS has held that if the trust income was applied toward the purchase of life insurance, even in contradiction of the terms of the trust, the trust would nonetheless be characterized as a grantor trust.

√ The Definition of “Health”: The definition of “health” means the provision of medical services by physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals who provide medical services directly to a patient. If you don’t provide services “directly” to the patient, e.g. a radiologist reading an MRI and issuing a report to another physician, do you qualify for the new 199A 20% deduction and avoid the health care exclusion?


  • Proposed Regs under Sec. 199A and 643 include anti-abuse rules under Sec. 643(f) to prevent taxpayers from establishing multiple non-grantor trusts to avoid Federal income tax. That sounds like creating a single non-grantor trust (a trust that pays its own tax rather than passing tax costs through to the settlor) works! But multiple trusts may be zapped whether you’re trying to maximize property tax deductions, 199A deductions, or other tax benefits.
  • Do the multiple trust restrictions really work? Are they valid? Code Sec. 643 (f) grants the Secretary (IRS) authority to treat two or more trusts as a single trust (meaning you would lose the ability to get business interest into trusts that are below the taxable income threshold in Sec. 199A and then not qualify for the 20% deduction if: (1) the trusts have substantially the same grantors, and (2) substantially the same primary beneficiaries, and (3) a principal purpose of which is the avoidance of the tax. The law seems to require all 3 conditions being met but the Proposed Regs suggest that if there is a tax avoidance purpose you lose (the IRS can aggregate trusts) no matter what. That seems to exceed the statutory mandate.
  • The Proposed Regs define “A principal purpose” for establishing or funding a trust as a significant income tax benefit unless there is a significant non-tax (or non-income tax) purpose that could not have been achieved without the creation of these separate trusts. Well, if you can shift passive non-source income (e.g. securities) out of a high tax state and get asset protection benefits from the trust sounds like those might suffice to negate the principal purpose test.
  • Does rental income from triple net leased real estate qualify for the 20% deduction? Maybe. The Proposed Regs apply a Sec. 162 “trade or business test” which might negate net leased real estate from qualifying. But they have an example of net leased land to an airport with insignificant expenses that suggests net leased realty qualifies. But they suggest that the landlord “manages” the property which is unclear. So, the conclusion is still fuzzy.

As featured in Shenkman Practical Planner, Volume 12, Issue 3.


Martin M. ShenkmanMartin “Marty” Shenkman, CPA, MBA, PFS, AEP, JD is an estate planning attorney and Certified Public Accountant from Paramus, New Jersey. He received his Bachelor of Science degree from Wharton School, University of Pennsylvania 1977 with a concentration in accounting and economics. He received a Masters degree in Business Administration from the University of Michigan 1981, with a concentration in tax and finance.

Mr. Shenkman is a widely quoted expert on tax matters and is a regular source for numerous financial and business publications, including The Wall Street Journal, Fortune, Money, The New York Times, and others. He has appeared as a tax expert on numerous television and cable television shows including The Today Show, CNN, NBC Evening News, CNBC, MSNBC, CNN-FN and others. He is a frequent guest on radio talk shows throughout the country and has a regular weekly radio show on Money Matters Financial Network.

Mr. Shenkman is a prolific author, having published thirty-four books and more than seven hundred articles. Mr. Shenkman has served as contributing editor to a host of publications, including: New Jersey Lawyer, The Journal of Real Estate Finance, Real Estate Insight, Commercial Leasing Law & Strategy, The Journal of Accountancy, Real Estate Accounting and Taxation, Shopping Centers Today, and others.

Mr. Shenkman is active in numerous charitable organizations, sitting on many boards and planned giving committees and lectures regularly for these and other organizations.

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