Why Your Estate Attorney Doesn’t Understand Your MLPs — And What to Do About It

My estate attorney is excellent at what she does. So is my CPA. They have never had a productive conversation about my MLP positions.

My estate attorney structured a revocable trust. She understands trusts — marital deductions, exemptions, generational transfers, funding instructions. She does not understand that my EPD basis has eroded from $37,500 to near zero, that I’m accumulating §751 recapture every year, or that the trust type she chooses determines whether roughly $40,000 of deferred tax on that position gets eliminated at my death or passes to my children as an ordinary-income bill.

My CPA understands all of that. He files my K-1s. He tracks my basis. He knows exactly what §751 would cost if I sold tomorrow. But he didn’t draft the trust, he doesn’t know what swap powers it includes, and he doesn’t have the authority to change the structure.

The knowledge gap between these two professionals is where MLP investors lose the most money. Not through bad advice — through incomplete advice. Each professional sees their half of the picture clearly. Neither sees the whole thing.

This article is for both of them. It’s also for the financial advisor sitting between them, and for the MLP investor who has to be the bridge because nobody else is.

These are not criticisms. They are specialization gaps. An attorney can practice estate law for 20 years without encountering any of these. For clients who hold MLPs, they matter enormously.

1. MLP basis erodes to zero over time.

Your client bought 1,000 EPD units at $37.50. Their broker shows $37,500. The IRS says their adjusted basis is approximately zero after 15 years of distributions and allocations. The broker’s number is wrong. The gap matters enormously for trust planning — because §1014 step-up eliminates the gap, but only if the trust structure permits it.

Why attorneys miss this: They see the brokerage statement. The brokerage statement shows cost basis. The cost basis is wrong for MLPs — but the attorney has no reason to know that unless they understand partnership accounting. The tracking happens on the K-1, which attorneys don’t read. See why the broker’s cost basis is wrong.

2. §751 recapture is ordinary income, not capital gains.

When a client sells MLP units (or when step-up is lost in an IDGT), a portion of the gain is taxed at ordinary income rates — not capital gains rates. For long-held positions, the §751 component can run $30,000–$50,000+ per position. This is the “hot asset” recapture that §1014 eliminates at death. If the trust structure prevents step-up, the beneficiaries pay it at ordinary rates.

Why attorneys miss this: §751 is partnership law (Subchapter K). Estate attorneys study Subchapter A/B (trusts and estates). These are different courses, different bar exam sections, and different practice areas. An attorney can practice estate law for 20 years without encountering §751.

3. UBTI inside irrevocable trusts can trigger Form 990-T.

If the trust holds MLP positions and generates unrelated business taxable income above $1,000, the trust must file Form 990-T and pay tax at trust-compressed rates. Most estate attorneys have never filed a 990-T for a trust — because most trusts don’t hold assets that generate UBTI. MLPs are the exception.

Why attorneys miss this: UBTI is an exempt-organization tax concept (IRC §§511–514). It applies to trusts the same way it applies to IRAs, but most trust attorneys have never needed to know this.

4. Trust-rate compression is uniquely punitive for MLP income.

Growth stocks in an irrevocable trust may not generate significant current income until sale. MLPs generate K-1 income every year. At trust-compressed rates (37% above ~$15,650 under §1(e)), this ongoing income is taxed far more heavily than it would be at individual rates. The attorney who says “put everything in the trust” is applying a strategy that works for Apple stock but fails for Enterprise Products Partners.

Why attorneys miss this: They know trust rates are compressed. They don’t think about it in the context of assets that generate substantial current income every year — because most assets in trust portfolios don’t.

5. The §675(4) swap power has a specific, urgent MLP application.

Most IDGT documents include a swap power. Most attorneys include it by default because it’s what makes the trust “defective” for income tax purposes. But they don’t think about it as an MLP rescue mechanism — the ability to swap MLP positions out of the IDGT and into the grantor’s taxable account, restoring §1014 step-up eligibility. For an MLP investor with significant basis erosion, this swap is worth approximately 24% of FMV. It takes one phone call. Full walkthrough in MLPs in an Irrevocable Trust.

Why attorneys miss this: They think of the swap power as a structural element of the IDGT, not as an active planning tool to be exercised for specific asset classes.

Same format. Same respect. The CPA has the tax knowledge. They may not have the trust-drafting context needed to act on it.

1. Not all irrevocable trusts are the same for step-up purposes.

Your CPA knows §1014 step-up eliminates basis erosion and §751 recapture. But they may not know whether the client’s specific trust type gets step-up. A revocable trust does. A credit shelter trust does (the assets are in the gross estate). An IDGT probably doesn’t. A dynasty trust doesn’t. The CPA needs to ask the attorney: “Does this trust get §1014 step-up at the grantor’s death?”

2. Trust decanting can fix a bad structure.

If MLPs are trapped in the wrong trust, the CPA may assume the situation is permanent. It often isn’t. In approximately 40 states, trust assets can be “decanted” — moved from one trust to another with different terms. The CPA doesn’t draft the decanting — the attorney does. But the CPA is often the one who identifies the problem and initiates the conversation.

3. The §663(b) 65-day election requires proactive planning.

The CPA may file the trust’s Form 1041 every year without considering whether the §663(b) election would save money. For a trust holding MLPs, this election can shift income from 37% trust rates to the beneficiary’s individual rate — often saving thousands per year. The CPA needs to flag this with the trustee every January (the election deadline is March 6 for calendar-year trusts), not April.

4. §645 election is a 2-year bridge strategy.

When a revocable trust becomes irrevocable at death, the CPA can elect under §645 to treat the trust as part of the estate for up to 2 years. This gives the trustee time to develop a distribution plan without immediately subjecting MLP income to trust-rate compression. Many CPAs don’t make this election because they don’t think about the trust-rate impact on the specific assets inside the trust.

5. The trust’s state situs affects state tax on MLP income.

A trust domiciled in California pays up to 13.3% state income tax on accumulated MLP income. The same trust domiciled in Nevada pays 0%. If the trust document permits situs change and the trustee can be appointed in a no-tax state, the CPA should flag this to the attorney. The CPA sees the state tax bill. The attorney has the ability to change the situs.

Most financial advisors:

• Recommend MLPs (or MLP ETFs) for yield without understanding the K-1 vs 1099 distinction
• Don’t track basis erosion or model the long-term tax implications
• Don’t differentiate between holding MLPs directly vs through ETFs (AMLP, MLPA) for tax purposes
• Can’t compute the breakeven-to-sell price that accounts for §751 recapture
• Don’t factor §1014 step-up into retirement/estate projections

The advisor who says “sell your MLPs and buy the ETF for simplicity” may be giving advice that costs the client tens of thousands of dollars in tax — because the ETF doesn’t get the same step-up treatment as direct MLP ownership, and the sale triggers §751 recapture that holding would have eliminated at death.

Before recommending a sale, compute the breakeven-to-sell price that accounts for §751 and compare it to the §1014 step-up value. The simulator does both calculations side by side.

Three structural cases where the professional silo led to a suboptimal outcome. Numbers from the same engine that powers the rest of the cluster. Names are not named. The failures here are structural, not personal.

Both outcomes are legal, properly drafted, correctly filed. Both attorneys did their jobs. Both CPAs did their jobs. The only difference between the two outcomes is a 30-minute conversation that almost didn’t happen.

The uncoordinated result cost ~$39,406 that the coordinated result saved. On a larger portfolio — $500,000 or more — the gap routinely exceeds $100,000.

The federal estate tax exemption is $15M per individual ($30M for married couples via portability), permanent under the OBBBA (P.L. 119-21, signed July 2025), effective January 1, 2026, and indexed for inflation after 2026. The TCJA sunset that was scheduled to cut the exemption to roughly $7M was eliminated — it never took effect. If your attorney’s trust recommendation was built around beating that sunset, the premise is gone.

• At $15M, most MLP investors are comfortably under the exemption. IDGTs provide $0 estate tax savings for estates under the threshold — while still costing the §1014 step-up.
• The GST exemption is also $15M — but unlike the estate/gift exclusion, it is not portable between spouses. For multi-generational MLP holds, GST allocation is use-it-or-lose-it planning that requires the attorney and CPA to coordinate.
• The lost §1014 step-up cost doesn’t depend on the exemption level. The MLP basis erosion and §751 accumulation are the same either way.

Schedule the CPA-attorney coordination call. Use the IDGT crossover calculator in Article 5 to run the scenarios against the current $15M exemption.

This is the constructive section. Not just identify the problem — solve it. Roles below.

For the MLP investor / client

You are the bridge. Your attorney and CPA won’t talk to each other unless you initiate it. Two emails, five minutes.

Subject: MLP estate planning — can we review my trust structure?

Hi [CPA name],

I hold direct MLP positions (EPD, ET, MPLX, etc.) and I want to make sure
my trust structure is optimized for the §1014 step-up and §751 implications.

I came across this analysis: lucasandersen.ai/mlp/estate-attorney-mlp-gap

Could we schedule 20 minutes to review:
1. My current adjusted basis on each MLP position (not the broker's number)
2. Whether §663(b) is being used on my trust's 1041
3. Whether it makes sense to loop in my estate attorney for a coordination call

I've also run my positions through the MLP Portfolio Tax Simulator at
lucasandersen.ai — I can bring the output to our meeting.

Thanks,
[Your name]

Subject: Question about my trust and MLP positions

Hi [Attorney name],

I hold direct MLP positions in [trust type — revocable trust / IDGT / etc.].
My CPA has flagged that my MLP cost basis has eroded significantly and there
may be implications for §1014 step-up depending on the trust structure.

Two specific questions:
1. Does my current trust structure preserve §1014 step-up for the MLP
   positions?
2. If the trust is an IDGT: does it include a §675(4) swap power?

Here's the analysis that prompted this: lucasandersen.ai/mlp/estate-attorney-mlp-gap

Would it make sense to schedule a brief call with my CPA to ensure the
trust and tax strategies are aligned?

Thanks,
[Your name]

These two emails take 5 minutes to send. They can prevent a mistake worth tens of thousands of dollars. Bring the MLP Portfolio Tax Simulator CPA PDF export to the meeting — it’s designed to be the shared document. It includes per-position basis trajectory (IRS number, not broker number), accumulated §751 estimates, aggregate §1014 step-up value at current FMV, breakeven-to-sell price, and IRS worksheet citations for every computed value.

Two questions that bridge the gap:

• To the attorney: “Does my current trust structure preserve §1014 step-up for my MLP positions?”
• To the CPA: “What is the annual trust-rate compression cost on my MLP income?”

If either professional can’t answer, you’ve identified the gap.

For the CPA

You have the tax knowledge. You see the K-1 data. Use it to improve your clients’ estate plans:

1. Compute the §1014 step-up value for every MLP-holding client. Use the simulator’s estate planning mode. The number is often larger than the client expects — and larger than the attorney expects.
2. Flag trust-rate compression annually. When you file the trust’s 1041, compute what the tax would have been at the beneficiary’s individual rate. Show the trustee the difference. Recommend §663(b) proactively by early January.
3. Initiate the conversation with the attorney. Send the simulator’s CPA PDF and say: “My client has $[X] in accumulated basis erosion and ~$[Y] in §751 recapture. Does the trust structure preserve §1014 step-up?”
4. Use the simulator for client meetings. Premium handles multi-position portfolios, estate planning scenarios, and CPA PDF exports.

For the estate attorney

You don’t need to become a partnership tax expert. You need to ask one question before placing any asset in an irrevocable trust: “Does this asset have unique tax characteristics that interact with the trust structure?” For MLPs, the answer is yes — and the interaction is expensive if ignored.

1. Before drafting a trust for an MLP-holding client: ask the CPA for the current adjusted basis, the §751 recapture estimate, and the annual K-1 income for each MLP position. If the basis is significantly eroded, §1014 step-up is often the most valuable tool available — more valuable than the trust.
2. If you’ve already placed MLPs in an IDGT: check the trust document for a §675(4) swap power. If it exists, recommend the client swap MLPs out for non-partnership assets. One transaction restores step-up eligibility.
3. For new trusts with MLP-holding clients: consider excluding MLP positions from irrevocable trust assets. Transfer stocks, real estate, and cash — keep MLPs in the taxable account or revocable trust where §1014 is guaranteed.

Run through your client list. For each client who holds MLPs, answer these five questions. Not every client has the problem — just the ones where the gap is costing money.

Printable intake form. Send to the client before the three-way meeting. Saves billable time; makes the meeting productive.

Some attorneys will read this article (or hear you reference it) and say: “I know how trusts work.” They’re right — they do know how trusts work. The question isn’t whether they understand trusts. The question is whether they understand how this specific asset class interacts with trusts.

If your attorney can answer these two questions, the gap does not exist:

1. “What is my client’s IRS-adjusted basis on their MLP positions?” (Not the broker’s number.)
2. “What is the approximate §751 ordinary income recapture exposure on these positions?”

If they can’t, this isn’t an insult — it’s a specialization question. You wouldn’t ask your dermatologist to perform cardiac surgery. Not because they’re not a good doctor — because it’s a different specialty.

Your options:

1. Share the resources. Send Articles 1–5 in this series. An attorney who reads them will understand the issue in an hour.
2. Request a second opinion. Ask your CPA for a referral to an attorney who has experience with partnership interests in trust structures.
3. Bring the numbers. Run the simulator, print the CPA PDF, bring it to the meeting. When the attorney sees “$39,406 in §751 recapture eliminated by step-up vs. $0 eliminated by this trust type,” the conversation changes from theoretical to quantitative.

Printable. Designed for a CPA or advisor to use with every MLP-holding client annually.

Not to excuse the gap — to contextualize it:

• Bar exam and CPA exam don’t overlap here. Estate law (Subchapter A/B) and partnership taxation (Subchapter K) are separate exam topics, separate courses, and separate practice areas.
• MLPs are a small asset class. Only ~1–2M individual investors hold direct MLP positions. Most attorneys and CPAs never encounter the issue.
• The complexity is asymmetric. Regular stocks in a trust are simple — step-up works, no K-1, no UBTI, no basis erosion. MLPs are the one asset class where the trust structure has massive tax consequences.
• The professionals who DO understand both are extremely rare — and extremely expensive. A CPA who also has a JD and understands trust drafting, partnership taxation, AND estate planning charges accordingly.

This gap is the reason lucasandersen.ai exists. The MLP Portfolio Tax Simulator speaks both languages — trust structures and partnership taxation — and computes the interaction in dollar terms that both professionals can act on.

Coming soon: The cross-border knowledge gap — what happens when US MLPs meet Norwegian tax treaties, and why neither country’s professionals fully understand the implications.