Are You Wasting Your Clients’
$5.45 Million Basis-Increasing Coupon?

The “permanent” estate tax exemption has taken many clients’ focus away from estate tax planning. Instead, higher income tax rates and the new tax on “net investment income” have turned clients’ attention toward reducing potential taxes on their capital gains.

One way capital gains taxes can be significantly reduced is through proper estate planning - - utilizing a strategy known as The Optimal Basis Increase Trust (or “OBIT”). This combines the benefits of the typical A-B or Irrevocable Trust with the ability to gain a basis step-up for trust assets upon the trustmaker’s or beneficiary’s death.

Planners are increasingly using formula general powers and QTIP trusts and Clayton QTIP elections to exploit a step up in basis at the second spouse’s death. But, there are other, possibly better ways to legitimately use this $5+ million basis increasing coupon. What techniques allow clients with separate property in community property states and those in separate property states to generate a step up in basis for either spouse’s chosen assets at the first death? How do clients avoid a step down in basis? Can you compare and contrast the risks and rewards to these various techniques? Where is the line drawn in granting general powers of appointment in other family members to generate a step up in basis? How do we effectively plan “upstream” without running afoul of step transactions or the one year rule of IRC Section 1014(e)?

To answer these questions (and more), we have enlisted the help of nationally recognized estate planning attorney, Edwin P. Morrow, J.D., LL.M., MBA, CFP®, RFC®.  Join us and Ed for a very special 2-part presentation entitled, “Everything You Need to Know About OBITs & Upstream OBITs”.

On the first 90-minute program you will find out all that you need to know about OBITs, including:

  • What are the problems in relying on QTIP or General Power of Appointment marital trusts to get a second basis step up? What are the hidden traps and unanswered questions surrounding Rev. Proc. 2001-38?
  • How can you use formula general testamentary powers of appointment to achieve a second step up for bypass trusts, while avoiding a “step down” in basis?
  • How may you use limited testamentary powers of appointment to achieve the same result by triggering the Delaware Tax Trap?
  • How should you cap powers of appointment to avoid additional federal or state estate tax (and why simple caps should be avoided)?
  • What techniques can you use to ensure optimal basis increase at the first death (and which should be avoided or, at least, not oversold)?
  • How capital gains are typically trapped in non-grantor trusts, even “all net income” or simple trusts - - subject to 3.8% surtax as well as 39.6% / 20% rates - - and how can you get around this trapping to neutralize and enhance ongoing trust taxation?
  • When should you consider variations of “beneficiary-defective” clauses to transfer income taxation to beneficiaries and how?
  • How can you convert existing B Trusts and other Irrevocable Trusts to the “OBIT”?
  • And much, much more!

On the second 90-minute program, Ed will cover upstream basis planning in detail, including Upstream OBITs, with discussion such as:

  • How does IRC §1014 work for any upstream gifting and estate inclusion?
  • What are the pros and cons of granting presently exercisable or testamentary General Power of Appointment trusts (also known as Joint Exempt Step-Up Trusts or “JESTs”) to get a basis step up for either spouse’s assets at first death?
  • What are the pros and cons of spousal “Estate Trusts” to do the same? Can intervivos QTIPs be taxable in the grantor’s estate as well? How viable are Community Property Trusts? You will learn to communicate the contrast of these vs. safer irrevocable trust alternatives that have greater upside potential.
  • Why the Irrevocable “Upstream” Optimal Basis Increase Trust is the natural successor to basic Spousal Lifetime Access Trust (“SLAT”) planning.
  • How may you use limited testamentary powers of appointment to achieve the same result by triggering the Delaware Tax Trap? Are there benefits to using another state’s laws, such as Arizona or Delaware, in this area? Do DAPTs have a role in basis planning?
  • How do you work in leverage to turn a step up for $10 million of assets at a beneficiary’s death into a step up of $100 million or more? We’ll go through the §2053 regulations so you know the requirements, pitfalls and unanswered questions of getting basis for debt upon a powerholder’s death.
  • What is the differentiation between an Upstream OBIT and standard Irrevocable Grantor Trust planning? How does it contrast with a BDIT (beneficiary defective inheritor’s trust)?
  • How do we ensure continued asset protection for the settlor’s families?Who is the grantor for income, estate, gift and state creditor protection law purposes upon the lapse or exercise of different powers of appointment and why it matters.
  • How to safeguard upstream planning trusts against beneficiary insolvency or Medicaid payback in states like California that have passed creditor friendly law surrounding powers of appointment.
  • How to effectively exploit the generation skipping transfer tax exemption in conjunction with any upstream planning.
  • What is the Uniform Power of Appointment Act making its way through the states and how would it change common law to be more creditor friendly and attack creative planning with general powers of appointment? How to overcome these issues through drafting if your state passes it.
  • How can you convert existing B Trusts and other Irrevocable Trusts to the “Upstream OBIT”?
  • Pros and cons of using trustee/trust protector powers vs. decanting vs. non-judicial settlement agreement and court reformations.
  • And much, much more!


  • Program Title: Everything You Need to Know About OBITs & Upstream OBITs
  • Speaker:
  • Duration: 90 minutes


Includes: Immediately downloadable handout materials and MP3 audio recording.


100% Satisfaction GuaranteeNo Annual LicensingNo Membership FeesNo Pay Per Use


Edwin P. Morrow III

J.D., LL.M., MBA, CFP®, CM&AA®
Edwin P. Morrow III

Ed is currently a Wealth Strategist for Huntington National Bank, where he concentrates on thought leadership and planning ideas for high net worth clientele in tax, asset protection and estate planning areas. Previously, he was a Director in Key Private Bank’s Family Wealth Advisory Group, analyzing tax, trust and estate planning needs of ultra high net worth clients of Key Private Bank nationwide in conjunction with local teams of credentialled financial planners, trust officers, investment specialists and private bankers. Ed was previously in private law practice working in taxation, probate, estate and business planning. Other experience includes research and writing…


The Ultimate Estate Planner, Inc. and the presenter are not registered Continuing Education Sponsors and this program is not pre-approved for continuing education credit for any state or regulatory agency.

However, please note that each program includes a Certificate of Completion and, depending on the license and the regulatory agency for which governs a participant’s CE credit, some professionals may be able to self-report his or her participation and receive credit. It is the responsibility of the participant to complete any process necessary to seek self-reported CE credit for his or her participation. By registering for a teleconference (or purchasing on On-Demand program), you understand that CE credit is not guaranteed or warranted by the presenter or The Ultimate Estate Planner, Inc.