January 2017 - ATA 2.0

Should you set up trusts in a more “trust-friendly” state?

While it’s natural to set up trusts in the state where you live, you may be losing out on significant benefits available in more “trust-friendly” states. For example, some states:

• Don’t tax trust income,
• Authorize domestic asset protection trusts, which provide added protection against creditors’ claims,
• Permit silent trusts, under which beneficiaries need not be notified of their interests,
• Allow perpetual trusts, enabling grantors to establish “dynasty” trusts that benefit many generations to come,
• Have directed trust statutes, which make it possible to appoint an advisor or committee to direct the trustee with regard to certain matters, or
• Offer greater flexibility to draft trust provisions that delineate the trustee’s powers and duties.

To take advantage of these and other benefits, review your state’s trust laws and trust-related tax laws and consider whether another state’s laws would be more favorable.

It’s also important to review both states’ rules for determining a trust’s “residence” for tax and other purposes. Typically, states make this determination based on factors such as:

• The grantor’s home state,
• The location of the trust’s assets,
• The state where the trust is administered (that is, where the trustees reside or the trust’s records are kept), or
• The states where the trust’s beneficiaries reside.

Keep in mind that some states tax income derived from in-state sources even if earned by an out-of-state trust.

To enjoy the advantages of a trust-friendly state, establish the trust in that state and take steps to ensure that your choice of residence is respected (such as naming a trustee in the state and keeping the trust’s assets and records there). It may also be possible to move an existing trust from one state to another. We can help you determine if setting up trusts in another state would help you achieve your estate planning goals.

How to report discontinued operations today

Did your company undergo a major strategic shift in 2016? If so, management may need to comply with the updated rules for reporting discontinued operations that went into effect in 2015 for most companies. Discontinued operations typically don’t happen every year, so it’s important to review the basics before preparing your year-end financial statements.

Narrower definition of discontinued operations

Under Accounting Standards Update (ASU) No. 2014-08, disposal of a component (including business activities) must be reported in discontinued operations only if the disposal represents a “strategic shift” that has or will have a major effect on the company’s operations and financial results. A component comprises operations and cash flows that can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the company. It could be a reportable segment or an operating segment, a reporting unit, a subsidiary or an asset group.

Examples of a qualifying strategic major shift include disposal of a major geographic area, a line of business or an equity method investment. When such a strategic shift occurs, a company must present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections of the balance sheet.

Expanded disclosures

To provide financial statement users with more information about the assets, liabilities, revenue and expenses of discontinued operations, the new guidance also requires expanded disclosures. The following expanded disclosures must be made for the periods in which the operating results of the discontinued operation are presented in the income statement:

The major classes of line items constituting the pretax profit or loss of the discontinued operation. Examples of major line-item classes include revenue, cost of sales, depreciation and amortization, and interest expense.

One of the following: Either 1) the total operating and investing cash flows of the discontinued operation, or 2) the depreciation, amortization, capital expenditures, and significant operating and investing noncash items of the discontinued operations.

The pretax profit or loss attributable to the parent. This applies if the discontinued operation includes a noncontrolling interest.

Management also must provide various disclosures and reconciliations of items held for sale for the period in which the discontinued operation is so classified and for all prior periods presented in the statement of financial position. Additional disclosures may be required if the company plans significant continuing involvement with a discontinued operation — or if a disposal doesn’t qualify for discontinued operations reporting.

Which rules to apply?

Unsure whether a disposal qualifies as a discontinued operation under the updated rules? Reporting disposals can be confusing and time-consuming. We can help you understand the new, simpler discontinued operations guidance, which, if applicable, could streamline your reporting process.