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MarkWest Energy Partners, L.P. Message Board

  • lizahuang54321 lizahuang54321 Mar 12, 2013 5:26 PM Flag

    Request for arb or moneyonomics

    They have both posted here recently, so hoping either could assist:

    There is an MLP tax question that I have never seen a definitive answer for which I would love to get rock_n_rent's view on. It's sort of an estate planning question but the focus is on the MLP taxation aspect and I'm not sure a regular estate planner/financial advisor would give me the correct answer, and the risk of adverse consequences if the answer is incorrect is high. So could someone post this on the IV board with request for an answer by rock_n_rent if he sees it (and even if not, maybe some other knowledgable readers of that board could comment).

    I have a significant portfolio of MLPs which is, to borrow a phrase, 'pregnant with ordinary income' (ie. I have already significantly depleted my capital account on many of them). I want to make sure these assets will be dealt with according to my wishes in case I die (hopefully not imminent, but nevertheless it's prudent to make arrangements). The specific question is in regards to
    a) a revokable living trust
    b) transfer on death registration of the brokerage account.
    Specifically, if I put my existing individual taxable account into a revokable living trust, would that in any way trigger a 'disposition' which could make payable all deferred taxes.
    Similarly, if I simply register the existing individual account as a Transfer on Death account, is there any chance that could trigger the disposition.
    Finally, are the above trust and TOD provisions even allowed for limited partnership interests such as MLP units.

    My understanding is that either option results in a change of the name of the account (to the ABC Trust or to XYZ Transfer on Death to XYZ2), and that is what worries me since the partnership would therefore have to be notified to change the ownership information and could conceivably trigger a disposition. I have read what I could find on the web, however it's hard to find details of how the rules intersect with MLP tax rules.

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    • liza, i have a question for you under HEP message board. COULD YOU PLEASE TAKE A LOOK AT IT? THANKS.

    • It seems you have five TOD's, grandkids, get equal distribution of the trust assets, your executor will most likely have to sell everything to distribute cash to each in a fair manner. The TOD value is tax treated as if it was purchased on the death date, resetting in the trust at that value. You must consider your kids will all open new accounts to transfer the assets, either cash or stock if it can be divided fairly. Their investment goals will be different than yours, along with the time horizon for investment. Consider a TOD transfer of all units into a "Family Trust" you would set up now with those you wish to give the assets to. Each could be granted a percentage ratio in value of the new Family Trust. A monthly distribution can also be established, along with some rules regarding your wishes so they don't blow it all. Ask the attorney experts in estate planning.

      • 2 Replies to steveh8000
      • I presently have grankids from 10 to 21 years of age so i need an executor. I feel also it is too complex to manage a mlp exclusive portfolio so the money should go to them and the executor who has a MBA in finance will manage it until each reaches 25. Liza has the easiest situation but to give somebody a exclusively mlp protfolio of 30 mlp's even at an upgraded price is too much management and the 30 or so K-1's is a scene. EVERYBODY should think about trusts if there is alot of money and doesn;t have a will or such outside of IRA, Brokerage accounts go directly to beneficiaries named outside of probate.

      • Agree 100% except for why wait for the transfer to a trust since you can move things in and out at will.

    • FYI, I emailed both EPD and LINE about TOD registration and they have both responded no problem:

      from LINE:
      "There is no issue with the change in ownership name. However, in terms of how it is reported, it depends on how the broker documents it in their communication of the transaction with us. If they simply update the name in the account, there will be no change in terms of the K-1 reporting. However, if they treat it as a transfer from one account to another, it may affect the reporting. Without knowing how they will advise us, there is no way for us to be able to say exactly what will occur. However, when you receive your tax package(s) next year, if there are any changes that need to be made, you can give us a call and see if we can adjust. Please let me know if you have any questions."

      from EPD:
      "There is no issue in a name change of the account. Enterprise Products can mirror whatever the broker has done. If the information on the k-1’s doesn’t appear to be correct after you’ve made this change, you can contact the tax package support group to update the information."

      • 1 Reply to lizahuang54321
      • And here is what the brokerage said about how they would handle the TOD registration (ie. this is how the MLPs would be notified):

        "As a general rule, if the Social Security Number or Tax ID Number will remain the same after registration change, we keep the account the same. If a new ID is needed a second account is required. This is only relevant upon death. Adding TOD instructions will not affect the account at this stage.

        In your case, a new account would be required upon death as your estate would have a unique tax ID. We would transfer all assets to the new account upon reciept of appropriate paperwork. Until then your account stays as an individual account with the same account number."

        According to this, the account stays the same, except for the name on the account. The SSN stays the same so there is no account 'transfer'. Together with what the MLPs (LINE and EPD) told me, I believe this implies there should be no concern about it triggering any recapture.

        Anyone disagree?

    • What I did was set up a revoccable trust and named the executor. I then went to broker and made the trust my beneficiary. The real question is since when you pass the stocks take on a present day price. What about the distributions etc when sold. My feelings are everything sets at present day prices as if it was bought today.The IRS is to inept to understand anything except a new basis and treat it like a LTCG.

      • 1 Reply to nymarv10956
      • So when you named the beneficiary on your brokerage account was that a TOD (transfer on death) registration such that the name on the account changes from your name to ?
        That's the part that concerns me - the change of owner name on the account which I believe happens when you do a TOD registration.

        As a side question, apparently the TOD registration avoids probate on those assets, so I would think makes the trust superfluous for this asset at least. I'm thinking the TOD registration obviates the need for a trust.

    • Couldn't add any more to that message, but if it makes any difference, the beneficiary in question would be 100% to spouse and we live in a community property state, ie. there's nothing special about the beneficiarie designations, it's purely a question of whether changing ownership to a trust or TOD registration for the account risks triggering disposition and recapture of deferred taxes.

      Thanks for any comments and would be great of we could get this on the IV board as it makes a change from UBTI discussions and I don't think I've ever seen this question addressed.

      • 2 Replies to lizahuang54321
      • Liz- Arb is absolutely correct. By the time the trust document is found and presented and OKd the executor has 6 months from certificate to exercise and pass to who the trust has named as beneficieries. My feelings are to keep in trust account until ready to sell in trust but in six months so stcg and ltcg are 0 to recipient. That is how I want it handled but I have 5 grandchildren with different ages who I have set age levels. The other situation is IRA . There it goes to who is named and it becomes a inherited IRA with special IRS options on time or age distributions A spouse inherits it all then they must make other estate plans etc.

      • liza - This has indeed been discussed several times. That is exactly what I did last year. My MLPs are held in a revocable trust. The trust states what happens on the death of either of the owners and the basis steps up on the death of either of us. Thus the ordinary income and capital gains go away if the trust is properly set up. No difference than owning as JTen/WROS or as community property. The death of one owner steps up the basis. There are several other ways to handle the ordinary income issue but none of us is willing to discuss except via PMs on IV board. Sorry bout that but you at some point need to join the party.

        What I can add is my mother owned three MLPs insode a revocable trust. She passed away in June of 2010. I waited the permissible 6 months and took the MLPs into my name only with a stepped up basis. The capital accounts all reset and all of the old passive losses and potential recapture went away.


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