USA – TEXAS Law and Practice Contributed by: Perrin Clark, Ytterberg Deery Knull LLP
strating that either (i) the agreement was entered into involuntarily; or (ii) the agreement is unconscionable and certain disclosure standards were not met. To succeed with a claim of involuntariness, the spouse opposing the marital property agreement must dem - onstrate that they did not enter into the agreement intentionally or by the free exercise of their will. To avoid a marital property agreement due to uncon - scionability, the agreement must be “so one-sided that no reasonable person could consider it to be an arm’s length transaction” and the spouse opposing the marital property agreement must prove that at the time of the agreement, they (i) were not provided fair and reasonable disclosure of the financial condition of the other spouse; (ii) did not waive such disclo - sure; and (iii) did not have, or reasonably could not have had, adequate knowledge of the other spouse’s financial condition. 2.5 Transfer of Property For US federal income tax purposes, property trans - ferred by a decedent upon their death receives a step- up in basis to the fair market value of such property at the time of death. In Texas, because it is a community property state, this tax benefit extends to a surviving spouse’s interest in the community estate, meaning that the surviving spouse’s one half interest in commu - nity property receives a similar step-up in basis on the death of their spouse. See 1.3 Income Tax Planning . 2.6 Transfer of Assets: Vehicle and Planning Mechanisms There are numerous planning techniques for the pur - pose of transferring assets to lower generations in a tax-efficient manner, including without limitation: • Dynasty trust – a trust that is designed to last for very long periods, often only limited by the applica - ble rule against perpetuities (RAP), thereby benefit - ing multiple successive generations and potentially reducing transfer taxes. • Rule against perpetuities – sometimes clients cre - ate trusts in a jurisdiction that provides a longer RAP period, eg, Texas law now provides for a 300- year RAP period. • Generation-skipping trust – a trust that is similar to a dynasty trust, except that it intentionally skips
over children in order to directly benefit grandchil - dren and more remote descendants. • Crummey trust – named after the trusts involved in Crummey v Commissioner , this trust provides ben - eficiaries with limited withdrawal rights that allow the use of annual exclusion amounts when making gifts in trust. • Section 2503 (c) trust – named after IRC Section 2503 (c) which specifically authorises this type of trust, this allows the use of annual exclusion amounts when making gifts in trust for benefi - ciaries under the age of 21 without the need for withdrawal rights and the associated notices to beneficiaries. • Family limited partnership (FLP) – an FLP or a family LLC is used to consolidate and hold assets, often in conjunction with other estate planning techniques, and can offer the potential for mean - ingful valuation discounts with respect to non-con - trolling interests. • Intentionally defective grantor trust (IDGT) – a trust with respect to which a grantor intentionally retains one or more powers in order for the trust to be treated as a grantor trust for income tax purposes without undermining its effectiveness for transfer tax purposes. • Sale for promissory notes – a sale of property in return for promissory notes, often utilising the applicable federal rate (AFR) in order to have the lowest interest rate possible without causing a gift. • Spousal lifetime access trust (SLAT) – a trust cre - ated by a grantor for the benefit of their spouse and descendants, for the purpose of making gifts for the benefit of descendants and utilising availa - ble US federal gift and estate tax exemption, while maintaining their spouse’s access to assets. • Insurance trust – a trust created to hold insurance policies, typically on the grantor’s life, which often includes special tax and insurance power provi - sions. • Grantor retained annuity trust (GRAT) – a type of split-interests trust with respect to which the gran - tor retains a right to receive an annuity for a period of years, while the remainder interest is left to other beneficiaries, thereby reducing the value of any gift made by the grantor to the trust. • Grantor retained unitrust (GRUT) – a type of split-interest trust with respect to which the gran -
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