Why I’m Jealous of Advisors Who Are NOT in Top-Tier Trust Jurisdictions

download-printable-article Download Printable Article

Group of people dressed in business attire racing on track. Some slight motion blur on people.

By Steven J. Oshins Esq., AEP (Distinguished)

Trust practitioners often tell me that I am lucky to reside in a top-tier trust jurisdiction like Nevada that has excellent asset protection, valuation discount, decanting and dynasty trust laws, as well as no state income tax.  However, they have it all wrong!  Seriously.

I largely have to rely on advisors outside of Nevada to refer me Nevada trust business, whereas practitioners in other jurisdictions have almost no competition among the local trust advisors since so few of them are taking advantage of out-of-state trust opportunities.  Thus, the ability to separate oneself from the local competition by using out-of-state trusts should be easy for them.

Although there are varying levels of ability and sophistication, if you get together a hundred estate planners in Nevada and ask them, by a show of hands, how many of them are decanting trusts, setting up dynasty trusts, setting up domestic asset protection trusts and/or setting up incomplete gift non-grantor trusts (to save state income taxes), most hands will be raised, thus at least appearing to illustrate a great amount of competition.

If you get together a hundred estate planners in a state where there is no decanting statute, no enhanced dynasty trust statute, no domestic asset protection trust statute and a high state income tax, you may see a few hands raised, but the very large majority have never even once taken advantage of an out-of-state trust.

Advisors Who Don’t Use Out-of-State Trusts:  What Their Clients Get

The clients of advisors who fail to use out-of-state trusts often can’t modify preexisting irrevocable trusts without going to court and petitioning for a trust modification.  They often have no decanting statute and they often fail to check their preexisting trusts to determine whether there is a change of situs provision enabling them to move the trust situs to take advantage of another state’s laws to easily change the trust terms through a trust decanting.

Their clients are often also limited to the common law rule against perpetuities period for their trusts.  Many clients are fine with that duration, but many would love to know that they can extend their trusts for a longer period of time without estate taxes.

Their clients also often fail to do any elaborate asset protection planning.  Sometimes they do no asset protection planning at all, and other times they simply contribute assets to a charging order protected entity such as a limited liability company.  Thus, with charging order protection, neither they nor their creditor can access the assets in the business entity.  That’s much better than doing no planning, but they can do much better….by using an out-of-state asset protection trust.

Their clients often pay state income taxes on income earned by their nongrantor trusts and they pay state income taxes on income off of income-producing assets they own personally or in their revocable trust.  Although state income taxes can sometimes be avoided, they pay them anyway simply by failing to consider an out-of-state trust.

Advisors Who Use Out-of-State Trusts:  What Their Clients Get

Advisors who use out-of-state trusts often take advantage of the opportunities provided by the first-tier trust jurisdictions.

Thus, they can modify an irrevocable trust by having the trustee distribute the trust assets into a brand new irrevocable trust using the state’s decanting statute.  They can set up new irrevocable trusts knowing that they might change their mind about some aspect of it in the future and be able to ask the trustee to decant the new trusts.

They can set up long-term dynasty trusts that avoid estate taxes either perpetually or for some period of years that is as good as forever.

They can set up a domestic asset protection trust whereby they are a beneficiary of their own asset protected trust.  This might be combined with a charging order protected entity such as a limited liability company.  This is far superior planning to simply setting up a charging order protected LLC since, if the trust holds up, the settlor can live out of the trust as a self-created trust fund baby without interference by the creditor.  Even better, the trust can be designed using a hybrid version which is a third-party trust (with far superior asset protection) that can be turned into a regular domestic asset protection trust at a later date.

They frequently also move third-party nongrantor trusts to a first-tier zero income tax state and make changes using decanting statutes to avoid or save state income taxes.  They also sometimes move their own assets or assets owned by their revocable trust into a special type of trust called an incomplete gift nongrantor trust to save state income taxes.

Summary

Any conclusion that an estate planning advisor located in a top-tier trust jurisdiction has a competitive advantage is missing the big opportunity.  It’s the advisors that are located in the jurisdictions with little or no favorable laws that so easily can use these planning advantages to beat their local competitors by attracting the interest of higher-net-worth individuals and turning them into clients.


 ABOUT THE AUTHOR

Steven J. OshSteven-Oshins43721143ins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at [email protected] or at his firm’s website, www.oshins.com.


OTHER ARTICLES IN THIS ISSUE

Leave a Comment