1. Introducing the Power of Appointment Support Trust An Innovative Approach to Tax Planning
Bryan D. Austin | Director, Wealth Planning
© 2016 Wells Fargo Bank, N.A. All rights reserved. For public use.

2. Agenda The “Sandwich” (Wealth Creator) Generation
Estate Exclusion and Tax Rates
Impact of Tax Legislation
Benefits of the POAST
Downstream Planning: The Traditional Approach
The POAST: Structure and Implementation
Illustrations
Expanded Applications
Additional Resources

3. The “Sandwich” (Wealth Creator) Generation
The Family Players
G1 = Senior Generation Family Member
Low wealth
Very little gifting, high remaining exclusion
G2 = Current Generation “Wealth Creator”
Significant wealth
Desire to provide for G1 and future generations
G3/G4 = Children/Future Generations

4. The “Sandwich” (Wealth Creator) Generation (cont.)
Concerns
Desire to support G1
Desire to transfer wealth to G3/G4
Minimize total transfer tax (estate/gift/GST) and income tax
Strategy
The Power of Appointment Support Trust (POAST)
Provide Support for G1, when needed
Capitalize on unused transfer exclusions of G1
Date-of-Death basis adjustment for appreciated assets

5. Estate Exclusion and Tax Rates

6. Impact of Tax Legislation
The estate tax is potentially all but eliminated for most individuals
99.8% of individuals* will have some or all of their estate tax exclusion amounts (and GST Exemption) expire worthless at their death.
The estate tax savings of the $5.45 million estate exclusion is $2,125,800
GST exemption is worth considerably more
Increased importance of income tax minimization
Decreased differential between federal income (+ surtax) and estate tax rates
* Source: Joint Committee on Taxation 2015

7. Benefits of the POAST Capture Otherwise Wasted Exclusions/Exemptions
Increased exclusion has significant wealth transfer value
Applying GST Exemption can enable wealth transfer to multiple generations
Mitigate/Eliminate Income Tax on Appreciated Assets
Date-of-death basis adjustment eliminates capital gains tax at the death of G1
25+ years earlier than traditional lineal planning
Relative Simplicity
POAST compliments existing planning – no changes to current structure
Additional exempt assets are added to existing planning structure
Expanded Opportunities
Can be used with Aunts, Uncles, Grandparents, Cousins, In-laws, etc.
Can leverage other planning strategies (discussed later)

8. Downstream Planning: The Traditional Approach
Emphasis is on transferring assets in flexible trusts for downstream beneficiaries
Power of Appointment (POA) – Most common method of providing flexibility to meet changes in circumstances
Limited Power of Appointment (LPOA)
Excludes the “forbidden four”: (1) the power holder, (2) his/her estate, (3) his/her creditors, or (4) the creditors of his/her estate
Minimal or no transfer or income tax consequences
General Power of Appointment (GPOA)
Must include at least one of the “forbidden four”
GPOAs trigger transfer tax inclusion (estate and GST purposes)
Assets subject to a GPOA will receive a date-of-death cost basis adjustment

9. The POAST: Structure and Implementation
The G1 beneficiary is granted a testamentary GPOA, equal to G1’s remaining estate exclusion at death
Query – Should the GPOA exercise be contingent on third party approval?
Caution – State, Commonwealth and D.C. creditor rights
Assets subject to GPOA, if unappointed, fund trusts for G3/G4 (or are added to existing trusts). Assets not subject to GPOA remain in non-exempt trusts for G3 with typical contingent GPOA language.
Language should be included to split the trust for G3/G4 to preserve the GST inclusion ratio
The trust can remain a grantor trust with respect to G2 (further leverage)
If the GPOA is unexercised
If GPOA is exercised, the trust becomes a non-grantor trust

10. The POAST: Structure and Implementation (cont.)
Wealthy individual (G2) wishes to provide support for an aging family member (G1) with very modest wealth 1 2
G2 transfers assets to a POAST for G1
Talking point for step 2: Gift tax may be incurred, but benefits will generally outweigh the gift tax cost. (see White Paper entitled “Gifting in a Changing Tax Landscape, Do Taxable Gifts Still Make Financial Sense?”)
Talking point for step 5: To the extent that G1’s GST exemption differs from estate exemption, the trust for G3/G4 can be split into GST-Exempt and GST-Nonexempt shares
G1’s unused GST Exemption can be applied to included assets, allowing these assets to benefit multiple generations without additional transfer tax (trading gift tax for GST Exemption)
Distributions are made to G1 for his/her support, when needed 3 5 4
At G1’s death, assets subject to GPOA are included in G1’s estate and receive a date of death basis adjustment, eliminating income tax on appreciated assets

11. Illustration – traditional planning
Estate Assets
Senior Generation’s Estate
All assets
Exclusion in excess of estate assets will expire worthless
GST exemption
Donor’s Estate
Estate Assets
Remaining
Estate Taxes
GST Exempt Assets
GST Nonexempt Assets
Assets for Children

12. Illustration – with poast
All assets
Estate Assets
Maximize Use of Exclusion
Senior Generation’s Estate
Support
POAST
TRUST
Unused exclusion of
senior generation GPOA
Remaining assets
Initial gift*
GST exemption
Donor’s Estate
Estate Assets
Remaining
Estate Taxes
GST Exempt Assets
GST Nonexempt Assets
Assets for Children
*Gifts in excess of available exclusion amount will incur gift tax.

13. Expanded Applications
The POAST structure can be expanded to implement additional planning strategies including:
Assets with significant appreciation potential
Life Insurance on the Donor
Asset Sales for a Promissory Note in IDGT
Grantor Retained Annuity Trust (GRAT) Residual

14. Additional Resources White Paper
Power of Appointment Support Trust (POAST): An Innovative Approach to Transfer Greater Wealth and Reduce Income Taxes
Trust and Estates Magazine article reprint
Introducing the Power of Appointment Support Trust
Bryan Austin
Director, Wealth Planning

15. Q&A

16. disclosures
Abbot Downing, a Wells Fargo business, provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. The information and opinions in this report were prepared by Abbot Downing. Information and opinions have been obtained or derived from sources that we consider reliable but we cannot guarantee their accuracy or completeness. Opinions represent Abbot Downing’s opinions as of the date of this report and are for general information purposes only. Abbot Downing does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report. Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared. This information is for educational purposes only and should not be used or construed as financial advice, an offer to sell, a solicitation of an offer to buy, or a recommendation of any security. Wells Fargo does not guarantee that the information supplied is complete or timely, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. © 2016 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. NMLSR ID

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