Asset Protection

Wednesday, April 25, 2012

New Book Helps You Plan for and Protect Your Assets

Orange County, California (March 29, 2012) – There are few things in life more certain than death and taxes and perhaps, in today’s society, Law suits.  However, the fact is few people actually plan for them. 

In the New Book The Ladder of Success: An Asset Protection Planning Primer, Attorney Jeffrey R. Matsen (“Top 100 Attorneys in U.S.” Worth Magazine) has provided a straightforward and elementary description of what Asset Protection really is and demonstrates how it can be effectively implemented by taking various steps, like rungs on a ladder, to truly climb the ladder of success.

“The one constant over the many years of my practice and among the hundreds of different clients I have served is the imbalance of, on the one hand, their profound concern regarding Asset Protection, and on the other, their lack of understanding as to how to implement it,” says Attorney Matsen. “I have dedicated my career to assisting these clients in planning the fortification of their resources to ensure their financial security in the face of taxes, liability and creditor attacks.” 

The Ladder of Success: An Asset Protection Planning Primer explains:

• Why Plan?  The Need for Asset Protection
• The Limitations
• The Operating Business Entity
• Basic Estate Planning
• Bankruptcy Considerations, Exemptions and Marital Planning
• Liability Protective Entities for Investment Assets
• Domestic Asset Protection Trusts and Modular Planning Utilizing LLCs
• The Offshore Asset Protection Trust and the Modular Planning that Accompanies It
• Advanced Estate Planning Techniques
• Special Issues and Strategies for Physicians and Dentists
• Climbing the Ladder and Putting It All Together

Chock full of authoritative information about estate planning and asset protection, The Ladder of Success: An Asset Protection Planning Primer is one book every conscientious person should own.  “Nobody understands the nuances and practicalities of this area better than Jeff Matsen.  His unique ability of making issues clear for clients and their advisors is a gift.  This book is required reading for any layperson or professional who wants to learn more about asset protection and more importantly, take action,” says Bill Deitch, Leading Estate Planning Attorney, Chicago.

“Jeff Matsen is an expert to the experts in the asset protection field.  Those seeking asset protection often share common characteristics—such as wealth, business ownership, real estate ownership, considerable income and estate tax exposures, as well professional practice ownership—and I recommend they read Jeff’s book to protect their families,” states Joseph J. Strazzeri, Fellow, Southern California Institute; Co-founder, Laureate Center for Wealth Advisors. 

Tim Voorhees, JD, MBA President, Family Office Services;  Principal, Matsen Voorhees, Orange County, CA. explains “Because of Jeff’s broad, multi-disciplinary experience, he knows how to integrate protection from lawsuits with protection from taxes. Jeff’s ability to combine creditor protection with tax planning helps clients accumulate more wealth and maximize upside potential.” 

“Jeff Matsen is one of the best estate planning and asset protection attorneys in the country.  His knowledge, wisdom and direct experience have truly made him one of the elite group of top experts in his field. If you are concerned about protecting your assets and want to leave a legacy for future generations, I highly recommend you read this book,” says Stephen Fairley, CEO of The Rainmaker Institute, LLC, The Nation’s Largest Law Firm Marketing Company. 

 Marc Selden, Nationally Recognized Estate Planning Attorney, New York City, states “Jeff is widely recognized in the legal community as an asset protection guru.  In this book, Jeff does a wonderful job of explaining the principles and strategies of complex asset protection planning in a very clear and easy-to-understand way.”

The Ladder of Success: An Asset Protection Planning Primer,  $19.95, Paperback 179 pages, ISBN 978-0-9852041-1-2, is published by Wealth Strategies Counsel, and is available online.  >>ORDER NOW

ABOUT  JEFFREY R. MATSEN
JEFFREY R. MATSEN, JD, received his law degree with honors from the UCLA School of Law and served as a Military Judge with the rank of Captain in the US Marine Corps.  Matsen has been a Professor of Law in Business, Estate Planning and Advanced Taxation. He is a highly sought-after and respected speaker and educator and has published numerous legal articles.  Matsen is the founder of “Wealth Strategies Counsel,” the Estate Planning and Business Transactions Department of Matsen Voorhees and Bohm, Matsen, Kegel & Aguilera, LLP, in Orange County, California.  His practice areas include: Business and Estate Planning, Asset Protection, Probate and Trust administration and litigation, Real Estate and Offshore structures.  Matsen has been designated one of the Nation’s “Top 100 Attorneys” by Worth Magazine, A “Super Lawyer” by Los Angeles Magazine and he is listed in The Best Lawyers in America.  The Nationally Renowned Attorney Rating Service, AVVO, has rated Matsen a perfect “10/10 Superb.” Besides continuing to achieve the highest “AV rating,” he has been designated a “Preeminent Lawyer” by the prestigious attorney rating directory, Martindale Hubble.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Friday, April 20, 2012

Steve Oshins’ 3rd Annual DAPT Ranking Chart & Other Free Updated Charts Available to Download

Steve Oshins’ 3^rd Annual Domestic Asset Protection Trust Ranking Chart
Thanks to the generosity of nationally renowned estate planning and asset protection attorney, Steven J. Oshins, Esq., AEP (Distinguished) for providing his 3rd Annual Domestic Asset Protection Trust Ranking Chart.  For the first time since the chart was originally created, this chart now assigns numerical rankings to each DAPT state. The approximate weights assigned to each variable are listed.  However, please note that in the interests of impartiality, since Nevada is the only state (of the top eight states per the rankings) that doesn’t allow divorcing spouses to access its DAPTs, Steve added a lot of subjective bonus points to the non-Nevada jurisdictions in order for the “Total Score” to not be too skewed. 

Traditional IRA Distribution Flowchart
Thanks to the generosity of nationally renowned CPA and IRA Expert, Robert S. Keebler, we are providing to you his updated Traditional IRA Distribution Flowchart.

Updated Understanding the 3.8% Health Care Surtax Chart
In late March, the Supreme Court began hearing arguments on the constitutionality of the Affordable Care Act, the health care reform law that was signed on March 23, 2010.  Accordingly, Robert S. Keebler updated his Understanding the 3.8% Health Care Surtax chart to reflect the new Medicare surtax. This law imposes a 3.8% tax on unearned income, such as interest, dividends, rents, royalties and certain capital gains, for higher income taxpayers (and trusts and estates).

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

*NOTE: Your contact information is required to receive these free resources. By supplying The Ultimate Estate Planner, Inc. your e-mail address, you are authorizing us to e-mail you announcements in the future about various products and programs we have available. You will also be added to the author's e-mail list and notified of tax news and information about programs.  The Ultimate Estate Planner, Inc. does not rent or sell its list to other third parties.  You can unsubscribe from these communications at any time.

Tuesday, April 17, 2012

Practical Planner: 2012— ACT NOW! (Volume 7, Issue 2)

Martin “Marty” Shenkman, Esq., CPA, MBA is an estate planning attorney and Certified Public Accountant who authors a number of publications each month, including his monthly e-mail newsletter, "Practical Planner".  Below is the second installment from Marty's March/April 2012 newsletter.  To be added to Marty's monthly e-mail distribution list, e-mail newsletter@shenkmanlaw.com.

Summary: Unless you’re hiding under a rock, you’ve been bombarded with email newsletters, mailings and more from your CPA, investment adviser, the 100s of people who want to be your investment adviser and more, cajoling you to make gifts before the end of 2012. Well this article is one more of ‘em. And you should pay heed. While the main drift of this message is clear: “make gifts before the law changes in 2013.” There are a number of important nuances to the message that the media blitz has not addressed: Lot’s of people, not just the ultra-high net worth folks, should be doing this. So if you’ve tuned out these messages because you’re not a zillionaire, tune back in! So, “I'll bet you think this song is about you.  Don't you? Don't you?” Well Carly, it is! No one should just make a gift, the gifts should be in trust (your lawyer won’t make any money on the deal if it’s just a simple gift!). These trusts raise a host of issues, many of which have special implication to 2012 planning. So, we’re going to try to convey these key points in a really succinct amount of space, but hopefully enough can be conveyed to motivate you to act now, and act prudently.

• Point 1:  Uncertainty shouldn’t be an excuse for inaction. If the weatherman says 20% chance of a horrible storm, you’d carry an umbrella. Uncertainty may also mean opportunity. If you don’t act now 2013 is scheduled to bring a $1 million exemption and 55% rate. President Obama has continued to propose estate and gift tax changes that will undermine much of the planning arsenal, making his proposed 45% rate and $3.5 million exemption far more costly than most imagine. Consider that the left end of the tax continuum. True, the future is uncertain. Perhaps the Republicans will sweep the election and repeal the estate tax.  Consider that the right end of the tax continuum. If you don’t act now and the left end materializes you (not only your heirs) may lose out big time. If the right happens worst case you’ve wasted the cost of the planning, but have you? The trust planning that will serve your estate planning needs will also provide asset protection benefits, including divorce protection for heirs, and better control and management of your assets. So the planning in the best tax case scenario won’t be for naught, you’ll just have one less benefit. And by the way, even if the estate tax is repealed (and ya shouldn’t hold your breath hoping for that one) the gift tax may remain intact with a $1 million exemption even under Republican control. Most folks forget that the gift tax is an integral backstop for the income tax, not only for the estate tax. Look at what happened in 2010 with the gift tax.

• Point 2:  Planning is not only for Richie Rich. If you have a non-married partner a $1 million gift exemption in 2013 may make it costly to shuffle ownership of assets between you and  your partner. Everyone, not just surgeons, should be concerned about asset protection. Nothing anyone in Washington does will change the litigious nature of our society. About a score of states have decoupled from the federal estate tax system so that lower amounts of wealth may trigger state death tax. A simple gift today might be all it takes in many situations to reduce or eliminate state estate tax. Use the current favorable tax environment to shift assets into protective structures before the party ends. A $1 million gift exemption will render much of this planning costly, impractical, or impossible. Remember at midnight 12/31/12 the carriage turns back into a pumpkin and the ride is over.

• Point 3:  Start with a Financial Plan. While your estate planner might think he or she holds the keys to the planning kingdom, this kinda planning should have at its foundation a well thought out financial plan. Does this suggest your wealth manager should be driving the bus? Nah, but they should be a co-pilot. How much can you afford to give away and be really assured that you won’t be asking the kids for a loan? Which assets can or should you give away? Do you need additional life insurance for coverage in light of components of the plan? Do you need access to the money you give away and if so how much? This analysis is meant to insure that you’re left with more than adequate assets to maintain your lifestyle after the transfers. This can deflect an IRS challenge that you had also an implied understanding with the trustees (or managers of an LLC) to get money back because you left yourself with insufficient resources. It can make it harder for a creditor to prove later that your transfers constituted a fraudulent conveyance.

• Point 4:  Make Gifts in Trust. Whatever amount you determine to give away, give it to one or more trusts, not outright to an heir. Trusts provide asset protection, divorce protection, preserve generation skipping transfer tax benefits (in English they can keep the assets out of the transfer tax system forever). Trusts can be structured as “grantor trusts” so you can sell assets to them without triggering capital gains tax and you can pay the tax on trust income and gains thereby growing the value of the assets inside the trust faster while shrinking the assets left in your name, thus reducing assets reachable by creditors or subject to estate tax.  Both of these bennies are on President Obama’s hit list, so get ‘em while you can. Perhaps the biggest vig of gifting to a trust is you can retain the ability to benefit from the assets in trust. Say you set up a trust for your spouse/partner and all future descendants. So long as your spouse/partner is a beneficiary you can indirectly benefit. Alternatively, you can set up a Domestic Asset Protection Trust (DAPT) and be a beneficiary of your own trust. Even if you’re mega rich, but much of your wealth is concentrated in a business, be very cautious about cutting off your access to trust assets. Don’t forget the harsh economic lessons of 2008-10+.

• Point 5:  Sell Assets to Trusts. While gifts can take advantage of the current law, sales of assets to trusts can also provide a huge benefit now, that may also disappear when the ball drops in Times Square. If you sell 45% of your interest in a family business valued with a 40% non-marketability and lack of control discount, that’s huge leverage. Discounts may head the way of the Dodo bird. Since few trusts will have sufficient cash to pay for the purchase these sales are structured as note sales. Interest rates remain at historic lows. So transfers well beyond the $5.12 million are “can do.” For many folks the better approach is a technique described in prior newsletters called a Beneficiary Defective Irrevocable Trust (BDIT) that will depend on this sale technique. Sell ‘em while you can!

• Point 6:  Design the Trusts Right. The trust or trusts you’ll use should not be off the rack. This is the time to step up to the custom tailored suit. Navigating Scylla and Charybdis is child’s play by comparison. Some of the issues to consider include:
  • Should you be a beneficiary or not? If yes, there are precautions to take and only certain states in which the trust can be established.
  • Is there any reason the trust should not be a grantor trust? Unlikely, but ask. If it is a grantor trust what happens if there is a big capital gain? Example – you transfer your family business to the trust and 5 years from now sell out to a public company for big bucks. You have to pay the gain but the bucks are in the trust. Some practitioners use a tax reimbursement clause but caution is in order. These clauses have to be handled correctly and the trust must be in a state with appropriate laws. Also, worrisome is that if the trustee just so happens to reimburse you, the IRS might argue that you had an implied agreement with the trustee to reimburse you for the capital gains tax on a big sale.  There may be better approaches.
  • If you and your spouse/partner both set up trusts, the trusts need to be sufficiently different to avoid the IRS arguing what is called the “reciprocal trust doctrine” -- that they are so identical that they should be “uncrossed” so that the trusts are taxable in each of your estates. That would entirely negate the planning. Differentiate the trusts using different powers, different distribution standards, set them up in different states, sign them on different dates, use different assets, print them on different color paper (just kidding on that one), etc.
  • If you own all the assets to be given can you set up a trust and gift $10.24 million and have your spouse treat the gift as if it is ½ his thereby using up his exemption? While spouses can gift split, if your spouse is a beneficiary of the trust which is the recipient of the gift, that is a no-no.
  • What if you gift $5.12 million to your spouse, and he then gifts it to his trust to avoid the gift splitting issue? Nice try but maybe no cigar. The IRS could attack using the “step transaction doctrine.” If the IRS wins they might treat your gift to your spouse, and his gift to the trust, as an indirect gift by you to his trust. Thus, you’d be treated as making two $5.12 million gifts and owe about $1.8 million in gift tax. Ouch!
  • There has never been a time in history when so many taxpayers may feel so compelled to make so many large transfers in such a short time period. Big brother will be watching so more caution and planning then ever before should be exercised.
  • You want to fund a FLP or LLC with appreciating assets, make gifts and secure discounts. If the assets are not inside the entity long enough the IRS will argue that the gifts were of the underlying assets – no discount.

• Point 7:  Operate the Plan and Trusts Right. Administer the plan and trust properly, and monitor it by meeting not less than annually with all your advisers to make sure all formalities are adhered to. Be sure the CPA is in the loop to monitor the gift and income tax returns so they all properly reflect the reality of the transfers. Revise asset allocations to coordinate asset location decisions.

Bottom Line:  Just Do It! Time is fleeting. Everyone should review planning options for themselves and their family/loved ones to ascertain what might be beneficial and how to expedite the process so planning is completed in advance of year end, preferably before the election.

To download the complete newsletter and prior newsletters, click here.

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ABOUT THE AUTHOR: Martin “Marty” Shenkman, Esq., CPA, MBA is an estate planning attorney and Certified Public Accountant from Paramus, New Jersey. He received his Bachelor of Science degree from Wharton School, University of Pennsylvania 1977 with a concentration in accounting and economics. He received a Masters degree in Business Administration from the University of Michigan 1981, with a concentration in tax and finance.

Mr. Shenkman is a widely quoted expert on tax matters and is a regular source for numerous financial and business publications, including The Wall Street Journal, Fortune, Money, The New York Times, and others. He has appeared as a tax expert on numerous television and cable television shows including The Today Show, CNN, NBC Evening News, CNBC, MSNBC, CNN-FN and others. He is a frequent guest on radio talk shows throughout the country and has a regular weekly radio show on Money Matters Financial Network.

Mr. Shenkman is a prolific author, having published thirty-four books and more than seven hundred articles. Mr. Shenkman has served as contributing editor to a host of publications, including: New Jersey Lawyer, The Journal of Real Estate Finance, Real Estate Insight, Commercial Leasing Law & Strategy, The Journal of Accountancy, Real Estate Accounting and Taxation, Shopping Centers Today, and others.

Mr Shenkman is active in numerous charitable organizations, sitting on many boards and planned giving committees and lectures regularly for these and other organizations.

Thursday, April 12, 2012

5 Important Steps to Update Estate Plans

The tumult of the current tax season is winding down, but advisors can provide a valuable additional service to their wealthy clients by encouraging them to closely review their estate plans to ensure these are up to date.

Estate plans are valid at the time they are signed, but sometimes years or decades pass before they come into play and circumstances change: assets grow or retract, designated trustees die, family members have falling-outs.

Keeping estate plans current is essential to protecting clients’ families and their assets, Blooma Stark, an attorney with Aronberg Goldgehn Davis & Garmisa, said in a telephone interview with AdvisorOne.

Stark noted that accountants are often the advisor clients see most often—at least once a year—and so are well positioned to recommend an estate plan review. In contrast, clients may see their attorneys only at wide intervals. She said she had just spoken with a client who had prepared an estate plan 20 years ago, and only recently realized she needed to update the plan.

Stark listed five estate plan areas to which advisors can direct clients’ attention for review. Doing this now “can save a lot of time and aggravation down the road,” she said.

1. Review Documents. It’s essential that a client’s estate plan documents align with his or her current situation. Often a review will show one or more of these need to be updated, Stark said. Especially important are the will, power of attorney, living will and trust.
2. Determine Familial Situation. Clients should assess whether their relationships with people they’ve named as guardians, executors, trustees or agents under a power of attorney are in good standing. If not, they will need to appoint others to fill those roles.
3. Assess Sub-Trusts.  Children grow up, and often their adult circumstances are different from those envisaged at the time the client formulated the estate plan. They may now have children of their own, requiring the arrangements of trusts to be changed. For example, Stark said, clients may decide that their children are sufficiently wealthy not to need to be direct beneficiaries and so execute a generation-skipping trust to ensure their grandchildren will be well provided for.
4. Update Schedule of Assets.  A critical issue clients often overlook or are unaware of is that an asset such as a second home does not automatically become part of their trust; the asset must be transferred to the trust during their lifetime. Failure to do this will likely result in probate costs that can escalate.
5. Evaluate Changes in Estate Tax Law. Depending on the net worth of the client’s estate, changes in the law may make it advisable to change estate plan documents. This year is a prime example, when so much is up in the air about the so-called Bush tax cuts. In 2013, for example, the estate tax exemption of $5 million could drop to $1 million, or some figure in between; nobody knows. Stark, like so many others who advise wealthy clients, said she has given up trying to crystal-ball what will happen next year. She is advising her high-net-worth clients to make gifts this year to take advantage of the current exemption.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: AdvisorOne.com
 

Thursday, April 05, 2012

How Do You Convince Clients to Actually Do GRATs (and Other Estate Tax Planning)?

The Ultimate Estate Planner, Inc. President and estate planning attorney, Philip J. Kavesh, J.D., LL.M. (Tax), CFP®, ChFC, California State Bar Certified Specialist in Estate Planning, Tax and Probate Law, and nationally renowned estate planning and asset protection attorney, Steven J. Oshins, Esq., co-authored an article entitled, "How Do You Convince Clients to Actually Do GRATs (and Other Estate Tax Planning)?", featured in WealthCounsel's April 2012 Quarterly Newsletter released earlier today.

READ FULL ARTICLE

In the April 2012 WealthCounsel Quarterly Newsletter

Download the April 2012 WealthCounsel Quarterly Newsletter

A Comment on the Ethics of Fraudulent Conveyances
By: Professor Denis Kleinfeld, Esq.

Do Not Forget About an Old 401(k) in Estate Planning
By: Jeffrey Bedell, J.D.

How Naming a Family Financial Assistant Makes Handling the Clients Affairs Easier for Everyone Involved
By: Timothy B. Borchers, Esq.

Create Your Own Micro-Climate To Make It Rain
By: Mark Powers & Shawn McNalis, Atticus, Inc.

Adaptable Planning Advice for 2012 and Beyond
By: Charles Douglas, JD, CFP®, AEP

You Can Call Me Ray, or You Can Call Me J: Common Terms with Different Names
By: Mary Merrell Bailey, JD, CPA, MBA, MSTaxation, MSAccounting

Attract, Engage, and Work with Families with Taxable Estates and Their Advisors
By: Joseph J. Strazzeri, Esq. and Stephen J. Mancini, Esq.

There’s No Place Like Home: Follow the Yellow Brick Road to a Better Estate Plan
By: Stephanie N. Prestridge, J.D.

Chunk It!  We Want to Tell You How to Chunk Your Life So You Can Achieve Peak Performance
By: Julieanne E. Steinbacher, Esq. and Adrianne J. Stahl, Esq.

Additional Content in This Issue!

• Drafting Documents: Set Your Sights on Accessible Language
   
• WebSource™ and ClientDocx™ - - Redefining the Way Members Generate Clients and Growth Their Practices 
   
• Five Reasons to Register Now for the 2012 Symposium

• WealthCounsel Unveils “EstatePlanning.com”
  EstatePlanning.com is the nation’s only web portal specifically designed to educate the public about the importance of estate planning while also facilitating communication with a local attorney.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Source: WealthCounsel.com

Wednesday, March 28, 2012

4 Estate and Tax Planning Steps to Take in an Uncertain Year

Regardless of whether Congress acts on taxes by year-end, estate planning attorney John Scroggin says taxpayers shouldn't dally

Reposted from AdvisorOne.com | By Michael S. Fischer, AdvisorOne

Planners will not know before year-end what changes on the tax front are in the works for 2013, according to John Scroggin, a business, tax and estate planning attorney and a popular speaker at advisor conferences based in Roswell, Ga. A last-minute deal in a post-election lame duck session of Congress, similar to the one in 2010, is highly unlikely.

That means planning this year will have to take place in a vacuum, Scroggin told AdvisorOne in a recent phone interview.

Scroggin (right) said affluent people, defined as those with upward of $3 million in assets, should discuss with their advisors whether estate planning is necessary in 2012, and consult with a qualified expert in estate and income taxes before implementing any major tax planning this year. “Waiting to year-end is stupid in this environment,” he said.

Given the parlous planning environment this year, he offered the following suggestions:

1. The estate and gift tax exemptions drop from $5 million per taxpayer in 2012 to $1 million in 2013. People with estates above $5 million to $10 million should consider making significant gifts in 2012 in order to reduce the future estate tax cost of bequests when the exemption is lower and the tax rate is higher. Although Congress may increase the exemptions in 2013, there is no assurance that will happen and if it does happen what the exemptions will be. Effectively, you will be forced to “plan for the worst and hope for the best,” he said.
2. The federal dividend rate of 15% will expire at year-end. Anyone holding significant cash in a C-Corporation should consider taking a dividend of the cash out before year-end. If needed, the funds could be loaned back to the C-Corporation.
3. The federal capital gain rate increases from 15% to 20% in 2013. If you are anticipating an imminent capital gain transaction, consider completing the transaction before year-end. If a transaction in 2012 has any deferred payments, consider assuming the entire tax burden in 2012, rather than opting to pay taxes as the funds are received.
4. A client whose longevity beyond 2012 is in question (because of terminal illness or old age, for example) should consider having a general power of attorney in place, with the power holder having broad authority to make gifts and/or advance bequests.

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Yesterday, we held a teleconference with estate planning attorney and CPA, Martin M. Shenkman on the topic of, "Recent Developments in Estate Planning: Special Traps and Tips to Avoid Them".  According to attendees, this was an excellent program to cover a variety of tax planning ideas for this year.  You can still purchase the handout materials and the audio recording to this program. 

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Monday, February 27, 2012

Adopt Your Girlfriend as Your Daughter Asset Protection Plan Shocks Planning Community

Reposted from The Trust Advisor | By Scott Martin

Estate planners call “Adopt Your Girlfriend as Your Daughter” strategy to shield John Goodman’s assets from creditors bizarre. His lawyers say they have lost confidence in Bessemer Trust’s ability  to manage Goodman’s children’s money after the girlfriend-daughter was added as a trust beneficiary. Others say that relationship now legally amounts to incest.

Depending on who you talk to, Palm Beach air conditioner tycoon John Goodman was either brilliantly expanding the frontier of traditional estate planning or hastening the end of western civilization when he adopted his 42-year-old girlfriend as his daughter and heir.

A dig into the details shows that while the move was way outside the box, it represents a remarkable response to a difficult and arguably unique situation.

Goodman is already facing 2010 drunk driving manslaughter charges that could put him away for the next three decades, so in that respect he’s past trying to protect his public image.

But with the court talking about starting the trial in the immediate future, his lawyers shifted to locking down his more tangible interests, including support for his girlfriend and control of a family trust reportedly worth $300 million.

After all, if the trial goes badly, his time as a free man will be extremely limited.

“It should be obvious to everyone that at the present time Mr. Goodman’s continued availability to ensure that the trust’s assets grow and continue to provide benefits for his children is uncertain,” explains Daniel Bachi of West Palm Beach law firm Sellars, Marion & Bachi.

Cutting through the hype

When the media heard that the lawyers had decided to have Goodman adopt romantic companion Heather Hutchins — barely six years younger than he is — it unleashed a frenzy of misconceptions about how trusts actually work.

For one thing, Goodman is not trying to hide his money from the parents of the young man whose car he hit two years ago.

The assets in the trust were transferred in 1991, so the notion that Goodman was trying defraud a civil suit 20 years down the road is vanishingly remote.

In any event, while the trust is currently run under Delaware law, it’s not an “asset protection” trust in any way, shape or form. Goodman is not a beneficiary or the trustee, so he has neither ownership nor control.

He’s signed affidavits to that effect.

The bottom line here is that naming Hutchins as his third “child” doesn’t add a layer of protection from lawsuits — it’s not Goodman’s money any more and hasn’t been for a long time.

And Hutchins isn’t immediately going to get $100 million or even $70 million to play with. She’s now a beneficiary entitled to draw on the income, but not the trustee.

That income stream allows Goodman to provide for her and her two young children from a previous marriage, without antagonizing rich relatives who might balk at carving out a big piece of the family fortune for the girlfriend.

Under a separate agreement, Hutchins agreed that only $10 million of the trust’s principal would ever pass on to her children. Subsequent amendments whittled her interest down even further, to $5 million.

So adopting Hutchins takes care of her if Goodman goes to jail. But there’s an even bigger game afoot here waiting to play out.

Fighting the trustee, not the plaintiffs

Goodman’s lawyers frame the decision to adopt Hutchins as a way to give her official status in the eyes of Bessemer Trust, which has been running the trust since 2009.

As far as they’re concerned, Bessemer failed to live up to its promises to accept Goodman’s direction on how the “special” holdings in the trust — including his house and the $14 million polo club that turned him into a pillar of Florida society — should be managed.

“Bessemer agreed to keep the management team that had grown and protected these holdings in place for many years,” lawyer Bachi explains.

“Instead, Bessemer took steps to change management of these holdings, which have significant financial and intangible value to the children.”

Goodman named himself and two business associates as obvious choices with “experience with the management of such special assets.”

However, ex-wife Carroll objected to the appointment, leaving Bessemer with the headache that many trust companies that accept “alternative” assets like private equity and real estate know so well.

While the trustee tries to maintain an iron curtain between the grantor and the operations of the trust itself, the fact remains that the grantor is often uniquely qualified to manage the assets to their best potential.

As it is, Goodman’s ongoing relationship with the polo club is now being used in arguments that he’s been secretly running the trust to his own enrichment all along, no matter what the trust documents say.

If that were the case, those assets may be exposed to legal action no matter how many children he adopts.

That’s where adopting his girlfriend as a legal child-beneficiary may give him a chance to keep his polo club and run it too — even if he ends up in jail.

Hutchins apparently knows how Goodman wants the club to operate. As beneficiary, Bessemer has to take her interests and informed opinions seriously.

And in return for her input, she gets at least $500,000 a year from the trust.

“The contract provides funds to take care of Ms. Hutchins and her family and to compensate her for the large undertaking of overseeing such a complex and closely held family business,” Bachi explains.

As for the incest argument, it only legally applies to blood relatives.

Besides, if Goodman goes to jail, it will only matter on occasional conjugal visits anyway.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: thetrustadvisor.com

Thursday, February 23, 2012

How to Thrive in the Under $5 Million Estate Market

By Philip J. Kavesh, J.D., LL.M. (Tax), CFP^®, ChFC, California State Bar Certified Specialist in Estate Planning, Tax and Probate Law

I and many practitioners have over the years built successful practices on what I call the “middle market”, that is, estates valued anywhere from $500,000 to $5 million.

This level of estate planning practice faces a number of challenges today unlike any we have had in the past.  Our services have become commoditized into mass produced documents, with increasing low-priced competition from the internet, do-it-yourself packages, non-attorney paralegals and bargain-priced attorneys.  Plus, with the new $5.12 million Federal Estate Tax exemption amount for 2012, there is now reduced need for advanced--level estate tax planning and post-death administration. 

Should You Even Stay in the Under $5 Million Market?

Given all these challenges, I have heard many practitioners say that it is time to quit the under $5 million market.  I couldn’t disagree more. 

First, the greatest potential market share is comprised of less than $5 million estates.  I have read various statistics which estimate that estates over $5 million represent less than 2% of the overall estate planning market.

Second, the middle market consists mainly of those described as the “Millionaire Next Door” (profiled in the famous New York Times’ bestseller of the same name by Thomas J. Stanley).  These are the “Moms and Pops of America”, the great unserviced, silent majority, who don’t typically have a long-term, fixed attorney relationship.  Maybe they have worked with an attorney here or there for a specific matter or maybe for a “one-shot” estate plan, but they have basically been “orphaned” by the legal profession.  These are the easiest people to reach, close and get to refer their other friends to you.

Third, if you have a high net worth practice, by also offering planning to the middle market you can generate the cash flow you need to live on while you are “hunting white elephants”.

Fourth, you can develop a volume practice in this middle market that will allow you to retire someday!  If you have only a few, high net worth, “high touch” clients that require you to always be meeting with them, it will be much harder to transition them and it will be a far greater risk if you try; if you lose a few large clients, that’s a big hit on your total revenue.  If you have more of a volume practice, you can gradually turn over your clients to your junior associates and phase down (that’s what I’ve done).

Assuming that I have now convinced you to stay in this middle market, how do you overcome each of the challenges that I’ve pointed out and not only survive, but thrive?

Fight Back Against Commoditization and Low-Priced Competition

Some practitioners have just ignored these issues and have decided to do something completely different (or the opposite), focusing only on the “high touch” approach, over-servicing a few clients at higher fees.  The problem is, in this middle market, will there be enough of these types of clients willing to continue to pay significantly higher fees?  Will you be able to generate enough consistent cash flow?  And, if so, how much constant work will you have to put in for each client, that will effectively reduce your net profit? 

Consider the possibility of having two practice models side-by-side, like low and high end models in a Mercedes Benz showroom.  Maybe you can retain your high touch model for larger estates and a different model for estates under $5 million.

My approach to the under $5 million market is different than the high touch model.  I accept that we have become a “commodity” and show prospective clients why mine is better.  Where in any industry there is a Coca-Cola, there’s always room for a Pepsi.  You can actually leverage off the marketing done by the other competitors in your market.  Check out what they offer versus what you offer and show people how to comparison shop as part of your “consumer education” marketing approach.

For example, you can emphasize the importance of counseling as a part of what they get when they work with you, an estate planning attorney.  Emphasize that attorneys have, in the past, been called “counselors at law” and how important it is to see a skilled professional to assist with important choices, such as the following. Who should be the Trustee? Should there be Co-Trustees?  Independent Trustees? Distribution Trustees?  Who should be guardians?  Who should be the health decision makers?  How and when should each beneficiary receive his or her inheritance in the best manner?  And, of course, there is the counseling necessary to resolve special issues with blended families (children of prior marriages), LBGT couples, business succession planning, specific bequests and equalization formulas.  Emphasize how there are many decisions to be made, even before “filling in the form” or preparing their document - - and that “one-size-fits-all” planning may be the worst thing that people may do!

You also want to emphasize why your “hard package” (yes, your commodity!) is better and more complete.  This is also, of course, how you will justify the value of your higher fees.  This is not a technical article, but there are many unique features to your Basic Living Trust plan that probably do set you apart from plans of your competitors - - everything from “flexible” A-B trust provisions, HIPAA and Medicaid features, and custom-fit beneficiary trusts (lifetime, spendthrift, special needs and beneficiary defective asset protection trusts - - with special flexibility features like powers of appointment and trust protector powers). You can also emphasize the additional features of your overall trust plan, what I call the “support mechanisms” that make sure that the plan will actually work properly when the time comes - - things like title transfers, or adjunct materials like an Owner’s Manual and Health Document Emergency Card (such as Docubank).  You can also add on, for people with larger IRAs, a Stand-Alone IRA Inheritance Trust.  Finish by simply posing the question, “Do those other low-priced plans do all this?”

You also can emphasize service after the sale, which they don’t get from the low-priced competition.  Some practitioners utilize a maintenance program at an additional fee, but I favor a free service package approach with the under $5 million market.  I’m not going to get into here the reasons why.  In either case, you can provide such things as periodic updates or seminars as laws and planning techniques change, a newsletter, periodic review meetings and a free Trustee meeting when the time comes that the Trustor is disabled or passes.  Be sure to “show and tell” prospective clients all the things that set you apart.

Combating the Reduced Need for Advanced Level Estate Tax Planning and Post-Death Administration

Even in the middle market, there are still a few simple, advanced level building blocks that can be placed onto the Living Trust foundation.  The key is to emphasize not so much the estate tax benefits of these planning devices, but more so their asset protection benefits, income tax benefits and succession management benefits (keeping assets in the family).  When describing these simple advanced techniques to middle market clients, just like with your basic product, you want to emphasize how your advanced product is also superior.  Examples of these products are: Dynastic Flexible Irrevocable Gifting Trusts (“dynastic” may mean even utilizing another state situs and by “flexible” I mean power of appointment and trust protector features that permit change of Trustee, beneficiaries and how and when they get their inheritance); LLCs and Self-Settled Trusts, particularly if clients own a business or rental real estate (again, possibly in another state utilizing better asset protection laws); Life Insurance / ILIT, emphasizing estate building and its use later as a “family bank” to acquire more property and wealth or, for use in equalization of bequests, and designing them too as “flexible”); CRTs for sales of appreciated assets without capital gains tax; and, QPRTs as a way to hedge peoples’ bets about estate tax in times of uncertainty, particularly in the middle market where they may not want to make substantial gifts of investment assets they may need later to live on.

Your post-death administration may go down for estate tax purposes, but if you have done better lifetime planning, which includes continuing trusts for beneficiaries (even if they are beneficiary-controlled trusts), you clearly have more opportunity for next-generation planning, such as when testamentary limited powers of appointment need to be exercised.  And, even if clients come in for administration meetings where there is little more to do than a distribution deed, there is always an opportunity to make referrals to other professionals (who hopefully will refer back to you), such as a CPA or financial advisor, or to work with the client’s existing advisors and establish new business relationships.

Obviously, I could go on further in much more detail; however, given the limited space of this article, I trust that this will give you a good starting approach to being successful in the middle market.  Perhaps, in a future article, we can address another issue or “challenge” so many practitioners in this market face - - how do you attract and bring in these clients?

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: westbound415.com

Thursday, January 26, 2012

Interview on Dynasty Trusts with Guest Expert, Steven J. Oshins, Esq.

Steven J. Oshins, Esq. is a nationally renowned estate planning and asset protection attorney based in Las Vegas, Nevada, with clients all over the United States.  Steve was the author of Nevada’s 365-year Dynasty Trust law and often works jointly with estate planning attorneys from other states on setting up dynasty trusts and other advanced level estate planning and asset protection techniques.

We recently had the opportunity to interview Steve on the topic of Dynasty Trusts. 

UEP:  Would you please start by describing how the Dynasty Trust works?

Steve Oshins:  Let me begin by clarifying that I’m talking about the Dynasty Trust in the context of a lifetime irrevocable trust.  This is very similar to the Personal Asset Trust^SM that your law firm drafts inside the Living Trust, except the Dynasty Trust is irrevocable and funded during life rather than revocable and funded after death. 

A Dynasty Trust leverages a person’s gift and generation-skipping transfer tax exemptions for as many generations as applicable state law permits.  Whereas most attorneys draft trusts to provide for mandatory distributions to the grantor’s children at staggered ages, a Dynasty Trust is drafted to encourage the trustees of the trust to keep the assets in trust for the benefit of the beneficiaries and to allow the beneficiaries to use the trust property rather than receive it outright where it will be subject to estate taxes, creditors and divorcing spouses.

A true Dynasty Trust is one which is set up under the laws of a state that has modified its rule against perpetuities to allow the trust to continue perpetually or, such as Nevada, that has modified its perpetuities laws to provide for a much longer term than that permitted in the majority of jurisdictions. 

If the client does not reside in one of these favorable Dynasty Trust jurisdictions yet is not satisfied with the traditional perpetuities term in that client’s home state, then the client can utilize another state’s law by using a co-trustee in that more favorable state.  The co-trustee can be an individual, a trust company or a bank.  In order to provide for continuity, it is preferable to use a trust company or bank.

UEP:  Now that you have described the Dynasty Trust concept, how do you use the Dynasty Trust as an irrevocable life insurance trust?

Steve Oshins:  In my practice, I use a Dynasty Life Insurance Trust in nearly every instance in which most attorneys would use a traditional irrevocable life insurance trust.  Essentially, if the amount of life insurance death benefit is sufficient to cause an estate tax and thus should be purchased by an irrevocable life insurance trust in order to keep it out of the taxable estate, then it is clearly enough value to justify the slightly more expensive Dynasty Life Insurance Trust. 

Put another way, if saving estate taxes at the first generational level is valuable to the client’s family, then it certainly is similarly important to also save estate taxes on the life insurance death benefit at the next generational level and each successive generational level thereafter.  The combination of the leveraged life insurance death benefit with the leveraged estate tax savings creates a huge fund for the client’s descendants.

An estate planning attorney or life insurance agent who presents the Dynasty Life Insurance Trust concept to a prospective client stands to outdo any competition for that client’s business.  If I were the client and one advisor told me to use a Dynasty Trust and another advised me only to use a single generation life insurance trust, I would certainly hire the one who gave me the Dynasty Trust advice since I would have more confidence in the advisor who is looking out for my family’s long-term future.

UEP:  I agree with your analysis.  Can you describe the funding of the Dynasty Trust when purchasing life insurance?

Steve Oshins:  Absolutely.  There are a number of ways to fund the Dynasty Trust to pay the insurance premiums.  The most common way to fund it is with annual exclusion gifts.  This is often called a “Crummey trust”, named after a 1968 case called Crummey v. Commissioner. 

A Crummey trust is funded with gifts in which the trust provides that certain beneficiaries are given an immediate withdrawal power over those gifts.  By giving the beneficiaries this power, the gifts qualify for the annual exclusion and thus do not use any of the settlor’s million dollar gift tax exemption.  As of right now, each settlor is allowed to gift up to $13,000 per year per beneficiary under the settlor’s annual exclusion.  If the settlor’s spouse elects to gift-split on a timely filed gift tax return, the allowable annual gifting amount is doubled.

Even though no gift tax exemption is used, this is not the rule for generation-skipping transfer tax (“GST tax”) purposes.  For GST tax purposes, the settlor must apply some of his GST tax exemption to 100% of the gifts.  This is because the annual exclusion rules are different for GST tax purposes.

UEP:  In the first installment of this interview, we talked about the benefits of utilizing a lifetime irrevocable Dynasty Trust in order to protect gifted assets from estate taxes, as well as from beneficiaries’ creditors and divorcing spouses.  Are the Dynasty Trust assets always protected from all creditors, or does it depend upon the terms of the Dynasty Trust?

Steve Oshins:  It depends upon the terms of the Dynasty Trust.  For example, some attorneys draft Dynasty Trusts with mandatory income distributions to the trust beneficiaries.  This makes the income distributions attachable by the creditors of the beneficiaries and thus should not be recommended to clients who are concerned with creditor protection. 

Many Dynasty Trust “forms” follow this mandatory distribution philosophy which is why it is important for an experienced attorney to draft the trust.  Because attorneys are generally taught to work within the confines of their forms, less experienced drafting attorneys often don’t recognize that better provisions can be drafted into a Dynasty Trust.

UEP:  You have talked in the past about two different ways to draft a stronger Dynasty Trust.  You have referred to them in the past as the “best way” and the “second best way”.  Please start by describing the best way to draft a Dynasty Trust for creditor protection purposes.

Steve Oshins:  There are two basic options.  With both of these options, the Dynasty Trust can be drafted as a Beneficiary Controlled Trust, which is a term that I use to describe a trust that is controlled by the primary beneficiary of the trust.

The best way to draft a Beneficiary Controlled Dynasty Trust for creditor protection purposes is to draft the trust as a purely Discretionary Trust.  For maximum creditor and divorce protection, an independent trustee is used to make discretionary distributions and other tax sensitive decisions.  The primary beneficiary can be given the power to remove and replace the independent trustee, with or without cause.  Additionally, the primary beneficiary can be the investment trustee and thus can make all investment decisions over the trust assets. 

Because of this drafting approach, the primary beneficiary has the control over and use of the trust property as though he owned it free of trust even though the trust assets are protected from estate taxes and from the beneficiary's creditors, including divorcing spouses. This co-trusteeship, although slightly more complex than having just one trustee, provides the ultimate combination of control, estate tax savings and creditor protection.

UEP:  That is a great approach and one that our clients should all consider.  Now please describe the “second best” approach that you can use to provide creditor protection.

Steve Oshins:   The second approach is to draft the Dynasty Trust as a Support Trust.  With this option, the primary beneficiary can be the sole trustee so long as his distribution powers are limited to an ascertainable standard.  The ascertainable standard approved by the tax code (without causing the trust assets to be included in the beneficiary’s taxable estate) is one which allows distributions for the beneficiary’s health, education, maintenance and support.

Although a Support Trust is simpler to administer than a purely Discretionary Trust, certain creditors of the beneficiaries of a Support Trust may access the trust assets, so it is less protective from creditors than is a Discretionary Trust.  One such creditor that can often pierce through a Support Trust is a divorcing spouse of a beneficiary which is why the Discretionary Trust is the superior option.  The creditors that can pierce through a Support Trust can do so either by specific state statute or as determined judicially. 

The reason the Discretionary Trust doesn’t have this problem is that it doesn’t need to rely solely on its spendthrift provision to obtain its creditor protection.  Rather, its assets are protected because of the full discretion given to the distribution trustee.  Because the distribution trustee has full discretion over distribution decisions, the Dynasty Trust beneficiaries do not have a property interest over the trust assets and thus the creditors of those beneficiaries cannot obtain a property interest.

UEP:  We’ve talked about the benefits of passing assets using a Dynasty Trust and how to draft the Dynasty Trust for maximum protection from estate taxes, creditors and divorcing spouses.

One of the most effective - - and often overlooked - - uses of a Dynasty Trust involves the transfer of a hot business or investment opportunity.  Would you please describe this technique for our readers?

Steve Oshins:  I call this technique “Opportunity Shifting”.  It is the ideal strategy to use when your client has a hot business or investment opportunity because the client, by shifting the opportunity to a Dynasty Trust, can protect it from estate taxes, creditors and divorcing spouses for multiple generations.

The Opportunity Shifting technique is very simple.  We have our client ask his parent or grandparent to set up and fund a Dynasty Trust for the benefit of our client and his family.  Our client is the investment trustee and can select the distribution trustee.  As investment trustee, our client uses the money gifted from his parent or grandparent to start the new business opportunity as an asset owned by the Dynasty Trust.  

UEP: This sounds very simple and straightforward.  Why isn’t everybody doing it?

Steve Oshins: That’s the big question.  In fact, the Opportunity Shifting technique is so simple that it is shocking that there aren’t more estate planners and asset protection planners creating these for their clients every day.  I suspect that planners just don’t think about it.  But once they hear about it, it is so obvious and so easy to implement that they start using it all the time.   

UEP: Does this Opportunity Shifting technique work for an existing business or investment, or must it be a new business or investment opportunity?

Steve Oshins:  It must be a new business or investment opportunity.  Otherwise, the IRS will treat the beneficiary as having made a gift to a trust for his own benefit which would cause the trust to be included in that beneficiary’s taxable estate and would open the trust assets up to the beneficiary’s creditors and divorcing spouses. 

It is very important not to shift an asset to the trust if the asset already has value.  If the business or investment already has value, then, rather than Opportunity Shifting, the beneficiary may instead be able to sell the business or investment to the Dynasty Trust for cash or for a promissory note. 

UEP: I understand that the Opportunity Shifting concept is very useful as a divorce protection technique.  Please explain how this can be used in that context.

Steve Oshins: Not even considering the significant estate tax reasons for Opportunity Shifting, divorce protection in and of itself is a great reason to have such a trust.  Even if the client has a prenuptial or postnuptial agreement, the client’s assets are at risk if the agreement is found to be too one-sided or was signed under coercion. 

Using the Opportunity Shifting technique, the client can avoid increasing his net worth and his marital estate that is potentially divisible upon a divorce.  Even if the client resides in a community property jurisdiction, not only are the Opportunity Shifting Dynasty Trust assets not community property, but they’re not even separate property.  Rather, the assets are trust-owned property which is not subject to a divorce if the Dynasty Trust is properly drafted.  For this reason, every successful entrepreneur should have an Opportunity Shifting Dynasty Trust.

UEP:  We want to thank you for taking the time to provide our readers such important information! We know you are very busy with your practice and assisting numerous advisors and attorneys with their clients, so we appreciate your time. 

Steve Oshins:  You’re welcome!  It is my pleasure to be here with you today.

UEP:  If you would like to get some additional training on Dynasty Trust, as well as take a look at some of the educational teleconferences that Steve has done for us that is still available for purchase, please click here.  You can also download a free resource from Steve by visiting our Free Resources page.  Also, stay tuned for some great sales tools that we will be rolling out with Steve very soon!

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: oshins.com

Monday, January 23, 2012

Full Report of The 46th Annual Philip E. Heckerling Institute on Estate Planning

At The Ultimate Estate Planner, Inc., we are committed to providing our fellow estate planners access to the information, products, education and various resources that are available to help individuals be better practitioners and provide better service of both estate and financial planning, to their clients. 

Therefore, we are extremely pleased and privileged to provide to you through the graciousness of the American Bar Association's Real Property, Trust & Estate Law (RPTE) Section the full and complete report from the 46th Annual Heckerling Institute of Estate Planning Conference, one of the nation's leading conferences for estate planners, including attorneys, trust officers, accountants, insurance advisors, and wealth management professionals.

The 2012 conference was just held on January 9-13 in Orlando, Florida and had over 2,600 people in attendance.

Click here to download the Complete Report (Reports 1-16A)

You may also download individual reports and/or reports from prior years by visiting the ABA RPTE Section's website.

The University of Miami School of Law has also announced that the 47th Annual Heckerling Institute will be held next year from January 9-13, 2013 in Orlando, Florida.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Tuesday, January 17, 2012

Nevada Ranked as the #1 Jurisdiction for Domestic Asset Protection Trusts

One of The Ultimate Estate Planner's main teleconference speakers, estate planning and asset protection attorney, Steve Oshins, was featured in an article posted by The Nevada Trust Reporter entitled, "Nevada Ranked as the #1 Jurisdiction for Domestic Asset Protection Trusts in Steve Oshins’ Mid-Year State Rankings Chart". 

Nationally known estate planning and asset protection attorney Steve Oshins (www.oshins.com) is the creator of the Domestic Asset Protection Trust State Rankings Chart (which can be accessed on our Free Resources page) that he publishes each year and updates as the various states modify their laws.  He recently did a mid-year update to reflect some significant changes made by some of the ranked states.  We asked him to do an interview for The Nevada Trust Reporter to give us some details about the chart and the recent updates.  The interview questions and answers are below.

Why did you decide to create the Domestic Asset Protection Trust State Rankings Chart a few years ago?

People are fascinated with rankings.  You see this in the sports world where fans seem obsessed at times with where their team is ranked.  I wanted to bring that same excitement to the asset protection industry.

Rankings are subjective to a great extent, so I wanted to put together a concise chart which shows why the states are ranked a certain way.  When I published and marketed the initial rankings, I was surprised how much discussion it generated, so I have tried my best to follow each state’s changes through the years to be as accurate as possible so the rankings chart would be respected as more than just a marketing piece.

For years, there has been a lot of competition among the leading asset protection jurisdictions and I have seen marketing pieces that are so inaccurate that I felt that the industry needed a chart that could fit on one page and could allow the planner and client to make an informed decision.

How do you respond to people who ask you whether the chart is subjective even though you are a Nevada attorney?

Ironically, I rarely get that question, probably because people just look at the chart and can make up their own mind since the chart has all of the material jurisdictional differences in chart format.  The few times I have been asked whether it’s truly subjective, I like to joke that they should just “look at the chart — the chart doesn’t lie!” Nevada is so far ahead of all of the other states in the amount of protection it provides from creditors that this question hasn’t been a problem.  Having the shortest statute of limitations period of all the states and being the only state without any exception creditors who can pierce through the trust, Nevada is the choice when the client wants the greatest protection.  I don’t think that’s disputable.

Each year, I solicit national input on different listservs to make sure the chart is fair and balanced.  Thousands of practitioners are able to provide comments that I will consider.  I think the fact that I solicit these comments is a big reason why the chart has become so respected in the industry.

It was also very helpful that Forbes magazine published an article on Domestic Asset Protection Trusts in 2010 and made Nevada the only state with an A+ letter grade... READ MORE

Steve Oshins does several teleconferences on various asset protection planning for The Ultimate Estate Planner.  You can see what upcoming teleconferences we have with Steve and access our past programs with Steve by visiting our Past Teleconferences page.

This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.

Photo Credit: Steven J. Oshins, Esq.

Thursday, January 12, 2012

Sophisticated Trusts in English: DAPTs, BDITs, IDITs and More

By Martin M. Shenkman, CPA, PFS, AEP, MBA, JD

Planning with sophisticated trusts has burgeoned as taxpayers become fearful of the uncertainty about the future of the tax system (e.g., the drop in the gift and estate exemption in 2013 to $1 million and an increase in the rate to 55%).  In the current estate tax environment, more people then ever may benefit from using a Domestic Asset Protection Trust or “DAPT”, but to understand this technique, and whether it, or a different approach would be viable for you, an understandable overview of DAPT and related planning options is needed.  The following questions and answers are organized from a non-estate planner’s perspective to make them more accessible. Hopefully, this approach will help you better understand some of the great planning options that now exist, and that might be advantageous for you to consider, before the opportunities are legislated away.

1. What are the Key Features/Types of Trusts Typically Considered?
   1. Types of Trusts.
      1. APT = Asset Protection Trust.  An APT is not done for estate tax minimization.  Assets transferred are done to remove the assets from the reach of creditors, but you as the grantor/transferor retains powers, which causes the assets to remain included in your estate.
      2. DAPT = Domestic Asset Protection Trust.  A DAPT is an APT formed in the United States, rather than overseas.
      3. CGDAPT = Completed Gift DAPT.  A CGDAPT an asset protection trust that is structured so that the transfers to it are completed gifts for gift tax purposes.  Thus, the growth in value of assets occurs outside of your estate (in contrast to the APT, above).
      4. Dynasty Trust.  Dynasty trusts are primarily established for estate tax planning purposes.  They can be used for asset protection benefits, but the key distinction between a dynasty trust and a CGDAPT is that the grantor/transferor does not remain a beneficiary of the dynasty trust.  Dynasty trusts are always set up as completed gift trusts and, ideally, are all set up to maximize the generation skipping transfer (GST) tax benefits.  If you might need access to your assets, a DAPT or CGDAPT, not a dynasty trust, might be preferable.
      5. BDIT = Beneficiary Defective Irrevocable Trust.  A BDIT is similar to a CGDAPT, but the grantor/transferor forming the trust and transferring $5,000 of assets into it is typically a parent or other benefactor of yours.  You would be given a right to withdraw (called a Crummey power) the $5,000, which you may choose not to exercise.  This mechanism makes the trust a grantor trust as to you, which  means that the income of the trust is taxed to you, even though you did not form or fund the trust.  You can then sell assets to a trust for a note, and the growth in those assets should occur within the trust, while you pay the income tax on the earnings and gains of the trust. This payment of income taxes, while at first impression seems odd, is a power planning tool to further reduce your taxable estate (see discussion below).
   2. Trust Characteristics.
      1. Directed Trust.  With a directed trust, instead of the trustee making investment decisions, which has been the historic norm, a person, perhaps called a “trust investment adviser” or “investment trustee”, determines which assets the trust shall hold as investments.  If an independent or institutional trustee serves, if state law permits, they will not face liability for investment performance.  This mechanism makes it feasible for a trust with an institutional trustee to hold interests in a closely held business and, therefore, charge lower fees commensurate with this reduced risk.
      2. Grantor Trust. The income and gains of a grantor trust are reported by the grantor (except for the BDIT, discussed further below).  Importantly, you, as the grantor, may also sell highly appreciated assets to the trust without recognizing gain if the trust is characterized, for income tax purposes, as a grantor trust.
      3. Reciprocal Trusts – If two people, typically a husband and wife, create identical trusts for each other, the IRS may “uncross” the trusts and treat them as if each person created a trust for themselves.  This would undermine any hoped for tax benefits, and could potentially jeopardize asset protection benefits as well. When multiple trusts are planned, steps can be taken to minimize this risk.
   3. Combinations.  It is common to use a combination of the above in creating an estate plan.  For example, the husband might set up a dynasty trust that benefits the wife and descendants, and the wife might set up a CGDAPT that benefits herself, the husband and all descendants.  This approach has become more common as clients seek to take advantage of the current $5 million gift exemption before Congress reduces its largess.  The reason different types of trusts are used is that if a husband sets up a trust for the benefit of wife (and descendants) and the wife in turn sets up a mirror image trust for the husband, the IRS could “uncross” the two trusts and treat it as if each had set up a trust for themselves, thereby undermining any intended benefits.  This is referred to as the “reciprocal trust doctrine.”

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This post has been brought to you by The Ultimate Estate Planner, Inc., providing practical, tested and proven technical and marketing products to help estate planning professionals throughout the country build their practices.  Connect with us on Facebook, Twitter or LinkedIn.