Tuesday, May 15, 2012 Out of the Ashes: CPA Robert Keebler is Leading Keebler & Associates LLP to the Cutting Edge of Tax and Estate Planning
 Reposted from Financial Advisor Magazine | By Eric L. Reiner | May 2012
The financial crisis has been blamed for a lot of things. Setting in motion the events that launched a topflight planning boutique isn’t usually one of them.
The Ponzi schemes exposed by the crisis affected clients at the firm CPA Robert S. Keebler was with at the time. As he delved into the tax issues surrounding clients’ losses, Keebler, a nationally known speaker and writer based in Green Bay, Wis., came to a realization. Few, if any, noted experts existed in the obscure world of theft-loss deductions. So he set out to become one.
“I just knew someone had to step up and figure it out,” Keebler says. He invested time in learning the ins and outs of this little-used itemized deduction, then produced seminars and articles on the subject for practitioners.
Keebler is perhaps best known for his work in retirement plans and advanced estate planning, as well as for making private letter ruling requests from the Internal Revenue Service. Certainly he handles plenty of other matters as well, but foraying into the deep recesses of theft losses turned out to be a confidence builder and springboard. “Once we did that, we weren’t afraid to do other things,” he says.
Given such conviction, plus a little career coaching and encouragement from industry icons Sid Kess and Steve Leimberg, he made the inevitable move. In late 2010, Keebler left Top 20 accounting firm Baker Tilly Virchow Krause, where he had been a partner for years, to found Keebler & Associates with key members of his long-standing team. Guess what?
“The phone continues to ring,” says Keebler, 51. Frankly, the 18-month-old firm is doing fine, thank you very much.
In addition to serving the firm’s clients’ needs, “we do a lot of work for financial advisors, CPAs and law firms,” says Keebler, who remains down-to-earth and approachable despite his professional stature. “Most of our referral work comes from people who have heard me speak.” But then that’s always been Keebler’s rainmaking methodology.
How To Find Work In Green Bay And Beyond
“When I came up to Green Bay from Milwaukee in 1990, the only way to bring in work was to go out and teach local professionals like the Green Bay Estate Planning Council. You hoped if you spoke to enough people and showed them you had expertise that they would send you work,” he says. And they did.
As a speaker, “Bob is exceptionally good at breaking down high-level planning so that everybody in the room can understand and apply the ideas in their practice,” says Las Vegas attorney Steve Oshins, a prominent asset protection and estate planning expert with whom Keebler recently conducted a full-day seminar for a national accounting firm.
Keebler claims he was “driven to teach” once he discovered he was good at it, and that propelled him to the next level. Workshops for large insurance and financial-services companies, along with seminars for financial advisors, accountants and attorneys, take Keebler coast to coast these days. He also expands his reach with technology—through podcasts, webinars and teleconferences accessible through www.keeblerandassociates.com. The result is a clientele more national than local.
Skill Set
Like his teaching, Keebler’s writing for CCH, Leimberg Information Services and the American Institute of Certified Public Accountants emphasizes clarity and usefulness.
“Bob is able to get ahead of the curve in how to use estate planning tools and techniques and explain what they look like when they are modeled. He is a visionary,” says one of his editors and mentors, estate planning legend Steve Leimberg, namesake and CEO of the tax news and analysis service.
Keebler also holds awards such as the “Distinguished Accredited Estate Planner” designation (there are only 66 such individuals), which bears further testament to his technical prowess. But that alone does not a firm build. The truth is, Keebler is a pretty sharp cookie when it comes to marketing, too.
Staying on the cutting edge is vital to his teaching and writing brand. “So we move very quickly,” Keebler says. For instance, when the IRS recently announced an extension of the deadline for certain estates to elect the spousal portability of the estate-tax exemption, within hours Keebler & Associates blasted an e-mail to practitioners spotlighting the affected clients and steps advisors should take.
“We try to be the first people on the block with the news and how it’s going to apply,” says one of Keebler’s three partners, Stephen J. Bigge.
Inside The Engine Room
Each morning at the firm, another partner, estate-planning attorney Michelle Ward, begins her day with a visit to the Web sites of the IRS and a variety of subscription services. Her purpose is singular: to sift through the myriad news alerts and find the nuggets. “I’ll check to see whether anything relevant to our clients has come out and, if so, I’ll post it to our Twitter account and Facebook, and then pass it on to Bob,” says Ward, who has worked with Keebler since he hired her into the tax profession in 2000.
When Keebler deems a topic worthy of dissemination, he then turns to one of his partners. “We’ll figure out how the pronouncement applies to our client base and do a brief write-up on the rule,” explains Bigge, who Keebler hired right out of school from their shared alma mater, Lakeland College in Sheboygan, Wis., in 2001.
Backed By A Power Trio Of Experts
Keebler is the front man, enabled by his three partners’ strong, complementary backgrounds. Ward, an attorney with a master’s in law (LLM), tends to handle the research for private letter ruling requests while Bigge, a CPA, crunches the numbers for Roth conversions, sales to intentionally defective grantor trusts and other strategies clients are mulling.
The other principal, Peter J. Melcher, holds an LLM in tax plus an MBA from the University of Chicago. “Pete does the heavy tax research for white papers and opinion letters,” Bigge says. An executive assistant, Emily Rosenberg, rounds out the five-person operation.
Many accounting firms thrive on audits and tax-return preparation—dubbed “annuity work” by the CPA profession because of these services’ recurring nature—but that’s not the case at Keebler & Associates. There is no audit practice, and preparing returns accounts for only about 10% of total revenues. “Most of our revenues come from either Bob’s speeches or new tax-planning work from existing clients or referrals,” reports Bigge, who doubles as the firm’s chief financial officer.
An Eye On The Future
Despite the shop’s solid performance since inception, Bigge contemplates the future like a good CFO should. “The challenge is continuing to bring in work,” he says. “A lot of times we get called in as a specialist, and once we have resolved the client’s issue or helped him put a plan in place, he moves on and we have to look for our next planning client.”
A potential damper on the firm’s unique private letter ruling business is a recent hike in the fee the IRS charges for some ruling requests. That will make the requests feasible for fewer taxpayers, according to Ward.
In the firm’s estate planning business, a big question mark is what will happen to the federal estate tax exemption. Under current law, it will revert to $1 million per person at the end of the year. That would expand opportunities for estate planners. But if the exemption were maintained at its current $5 million, it would continue to constrain the market. In that case, says Bigge, “we’ll focus more on tax-sensitive retirement planning. That’s really at the intersection of finance and tax, where no one else wants to play.”
Developing drawdown strategies for retirees is one area Keebler has been putting time into lately. “If the client has Roth money, pretax money in an individual retirement account and after-tax money in a personal account, what does he spend first and how does he take it out in the most tax-efficient way? That’s where the action is,” Keebler says, adding, “Everyone is going to need a financial planner because this is so complex.”
Planners, for their part, will need to know more about taxes. “With the compression in tax season—because 1099s are going out later and later—having a 1040 prepared at a CPA firm is becoming more expensive” as accountants attempt to make a full year’s living in a shorter period, Keebler says. “The result is non-CPAs are preparing more income tax returns, and because of the seasonal nature of their businesses, often they are not equipped to do tax planning. So financial planners will have an opportunity to take a larger role in income-tax planning with more middle- and upper-middle-class families,” Keebler predicts.
Plans to grow Keebler & Associates stop at the point where the partners are managing the firm instead of bringing in lucrative speaking fees or national billing rates. From that perspective, an experienced practitioner, rather than a neophyte needing training, could be a more viable addition to the firm.
But no matter where the boutique winds up, it will have taken Keebler a long way from those local speaking gigs 20-plus years ago, even if ascending to the national stage and circulating with some of the biggest names in planning-dom were not his original goals.
“I was never shooting for the stars,” Keebler says. “It just kind of happened.”
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.
Sources: fa-mag.com
Friday, May 11, 2012 Steve Oshins & the Hybrid Domestic Asset Protection Trust
Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI). For information about how to subscribe to LISI, click here.
“After approximately 15 years since the first DAPT legislation passed, not a single DAPT has been tested all the way through the court system. Most likely this is because such a large supermajority believes that if tested the DAPT will work to protect its assets from a creditor of the settlor. However, despite the very high likelihood of protection, if there is a way to increase the odds of success even more, then such a strategy should be utilized whenever possible.
The Hybrid Domestic Asset Protection Trust (“Hybrid DAPT”) is such a strategy, and it is very simple. The Hybrid DAPT is like a regular DAPT except that the settlor isn’t an initial discretionary beneficiary of the trust, but can be added later.”
We close this week Steve Oshins’ commentary on a strategy he refers to as the “Hybrid Domestic Asset Protection Trust.” According to Steve, the Hybrid DAPT puts the client in a significantly stronger position than with a traditional Domestic Asset Protection Trust. As he explains below, this strategy can be used with both an incomplete gift version and a completed gift version of the Domestic Asset Protection Trust.
Steven J. Oshins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. Steve is a nationally known attorney who is listed in The Best Lawyers in America® and has been named one of the Top 100 Attorneys in Worth magazine. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He has written some of Nevada's most important estate planning and creditor protection laws, including the law making the charging order the exclusive remedy of a judgment creditor of a Nevada LLC and LP (in 2001, 2003 and 2011), the law changing the Nevada rule against perpetuities to 365 years (in 2005) and the law making Nevada the first and only state to allow a Restricted LLC and a Restricted LP creating larger valuation discounts than any other state allows (in 2009). He is also the author of the Annual Domestic Asset Protection Rankings which you can download from our Free Resources page. Steve can be reached at 702-341-6000, x2 or at soshins@oshins.com. His law firm's web site is http://www.oshins.com.
Before we get to Steve’s commentary, members should take note of the fact that a new 60 Second Planner by Bob Keebler was just posted to the LISI homepage. In his commentary, Bob reviews the May 4th opinion by the Ninth Circuit in Estate of Morgans, where the issue presented was whether Section 2035(b)’s gross-up rule applies in the case of a surviving spouse's deemed gift of a QTIP remainder. You don't need any special equipment to listen- just click on this link.
Now, here is Steve Oshins’ commentary:
EXECUTIVE SUMMARY:
Asset protection has become one of the hottest areas of law and has become the ideal complement to estate planning. Consequently, the Domestic Asset Protection Trust (“DAPT”) has become one of the most popular asset protection tools in the planner’s toolbox. As more states have enacted DAPT legislation, practitioners have started doing more DAPTs for their clients.
FACTS: After approximately 15 years since the first DAPT legislation passed, not a single DAPT has been tested all the way through the court system. Most likely this is because such a large supermajority believes that if tested the DAPT will work to protect its assets from a creditor of the settlor. However, despite the very high likelihood of protection, if there is a way to increase the odds of success even more, then such a strategy should be utilized whenever possible.
The Hybrid Domestic Asset Protection Trust
The Hybrid Domestic Asset Protection Trust (“Hybrid DAPT”) is a strategy that should increase the probability that the trust assets will be protected. And it is very simple. The Hybrid DAPT is just like a regular DAPT except that the settlor isn’t an initial discretionary beneficiary of the trust, but can be added later. Thus, the trust is initially set up for the benefit of the settlor’s spouse and descendants, for example, but not for the settlor. By not including the settlor as a beneficiary of the trust, the Hybrid DAPT is by definition a third-party trust and therefore almost certainly avoids the potential risk of uncertainty of a regular DAPT.
Especially where the settlor is married and has a strong, trusting relationship with his or her spouse, is there any good reason that the settler must have his or her name in the trust agreement as a beneficiary? It is very simple to indirectly access the trust assets through the spouse. And the trust agreement should define the “spouse” using a “floating spouse provision” that defines the spouse as the person the settlor is married to and living with from time to time. This gives the settlor the ability to access the trust assets through a subsequent spouse in the event of a divorce or the death of the settlor’s spouse.
If the settlor has no spouse, then it becomes more difficult to access the assets. However, since a good asset protection planner will be sure to leave sufficient wealth outside of the client’s asset protection trust, in most cases the settlor won’t have to work through this issue anytime soon.
If the Settlor Is Added as a Beneficiary
In case the settlor needs to be a discretionary beneficiary of the Hybrid DAPT sometime in the future (i.e., if the settlor has no spouse or child that will “share” a distribution with the settlor and the settlor now needs a distribution), the trust agreement provides that the trust protector or independent trustee can add additional beneficiaries, including the settlor. However, if the settlor is added, then the Hybrid DAPT becomes a regular DAPT and thus risks that the law is still unsettled on DAPTs (even though most people believe that they work).
What happens if the settlor suspects that a creditor attack may be forthcoming? Or what if the settlor is considering filing bankruptcy? In either case, very far in advance of the problem occurring, the settlor would ask the trust protector or independent trustee to remove him or her as a discretionary beneficiary.
§548(e) of the 2005 Bankruptcy Act
It is extremely unlikely that a DAPT settlor will file for bankruptcy, especially if the settlor has an “old and cold” DAPT that is past the applicable state’s statute of limitations period. In fact, of the hundreds of DAPTs created by the author, not one of those clients has gone through bankruptcy.
However, in maintaining the philosophy of this commentarythat it is important to build into the structure every safeguard available, it is interesting to note that the Hybrid DAPT most likely does not fit the definition required by §548(e) of the 2005 Bankruptcy Act that would otherwise potentially claw back the assets of a traditional DAPT. The requirements of §548(e) are as follows:
(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if—
(A) such transfer was made to a self-settled trust or similar device;
(B) such transfer was by the debtor;
(C) the debtor is a beneficiary of such trust or similar device [emphasis added]; and
(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.
Unless the settlor is added as a discretionary beneficiary of the Hybrid DAPT, Subsection (C) doesn’t apply. Also, arguably Subsection (A) doesn’t apply either since the Hybrid DAPT isn’t a “self-settled trust or similar device” at the time the provisions are applied.
The Completed Gift Hybrid DAPT
Most DAPTs are designed as Incomplete Gift DAPTs where the sole objective is asset protection. However, many DAPTs are designed as Completed Gift DAPTs where the settlor is a discretionary beneficiary of a trust designed with the following attributes:
(i) It’s a completed gift for gift tax purposes,
(ii) The settlor is a discretionary beneficiary,
(iii) The trust assets are protected from the settlor’s beneficiaries, and
(iv) The trust assets are outside of the settlor’s estate for estate tax purposes at the settlor’s death.
The Completed Gift DAPT strategy was approved by the Service in PLR 200944002 where a resident of a DAPT jurisdiction established the DAPT using the laws of that DAPT jurisdiction.
However, with respect to a resident of a non-DAPT jurisdiction, although most practitioners are comfortable that this strategy works, whether the trust assets are open to creditors of the settlor is still uncertain, since it is unclear which state law will apply for creditor purposes. The DAPT will be includible in the settlor’s estate at death if the trust assets are open to the settlor’s creditors. If this were the case, this would occur under IRC §2036(a)(1) since the settlor would be treated as retaining the ability to run up creditor debts which can be paid out of the trust at the settlor’s death.
IRC § 2036(a)(1) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in the case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which the decedent has retained for life or for any period not ascertainable without reference to the decedent's death or for any period that does not in fact end before death the possession or enjoyment of, or the right to the income from, the property.
The Completed Gift DAPT reduces this risk significantly since the settlor isn’t a discretionary beneficiary of the trust and, thus, it isn’t a self-settled trust. In an ideal scenario, the settlor will never need to be added as a discretionary beneficiary by the trust protector or independent trustee. However, if the settlor does need to be added at a later date, since the Completed Gift Hybrid DAPT also gives the trust protector or independent trustee the power to remove beneficiaries, as long as the settlor is removed as a discretionary beneficiary more than three years prior to death, there is no estate tax inclusion since IRC §2035 (the three-year contemplation of death rule) won’t apply.
Down and Dirty
To this date, there is still no case law saying that a DAPT does or does not work to shield the assets from the creditors of a settlor who is a resident of a non-DAPT jurisdiction. Although all the cases have settled, or the creditors have decided not to sue, the estate or asset protection planner must still consider how to plan if the law does go the wrong way. Unfortunately, although there will ultimately be case law, whether good or bad, unless the case law goes through the appeal process and is ultimately decided by the highest court, we still won’t have any certainty. So it is prudent to plan for this uncertainty.
If the settlor has set up a Hybrid DAPT, whether as an Incomplete Gift Hybrid DAPT or as a Completed Gift Hybrid DAPT, if the settlor wants to be sure to preserve a portion of the Hybrid DAPT’s assets if the settlor is being added in as a discretionary beneficiary, the trustee can split the Hybrid DAPT into two separate trusts and the trust protector or independent trustee can add the settlor as a discretionary beneficiary of only one of the two trusts so as not to taint the other trust.
For example, if there are $10 million of assets in the Hybrid DAPT, the trustee might divide the trust into two trusts – the “Clean Hybrid DAPT” which doesn’t include the settlor as a discretionary beneficiary and has $8 million of assets, and the “Dirty Hybrid DAPT” which includes the settlor as a discretionary beneficiary and has $2 million of assets. Thus, the risk has been transferred away from the Clean Hybrid DAPT to the Dirty Hybrid DAPT (which, again, should be protected, but is potentially being sacrificed in the interests of not tainting the assets in the Clean Hybrid DAPT). This is nothing more than a risk management decision.
COMMENT:
It is imperative that the asset protection planner create a plan with the highest probability of success. In most cases, it is possible to significantly increase the protection by simply using a Hybrid DAPT rather than a traditional DAPT. This commentary describes this structure, and also creates a further structure where the Hybrid DAPT can be divided into a Clean Hybrid DAPT and a Dirty Hybrid DAPT, so that even if the Dirty Hybrid DAPT is unsuccessful, it doesn’t taint the Clean Hybrid DAPT.
HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!
Steve Oshins
TECHNICAL EDITOR: DUNCAN OSBORNE
CITE AS: LISI Asset Protection Planning Newsletter #200 (May 10, 2012) at http://www.leimbergservices.com Copyright 2012 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.
CITES: PLR 200944002; Oshins & Keebler on Mortensen: “No, the Sky Isn’t Falling for DAPTs!”, Asset Protection Newsletter #186 (Oct. 31, 2011); Battley v. Mortensen, Adv. D.Alaska, No. A09-90036-DMD, May 26, 2011 (Original Memorandum) and July 18, 2011 (Memorandum Denying Motion For Reconsideration).
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.
Sources: Leimberg Information Services & Steven J. Oshins, Esq.
Friday, April 20, 2012 Steve Oshins’ 3rd Annual DAPT Ranking Chart & Other Free Updated Charts Available to Download
Steve Oshins’ 3rd 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.
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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!
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Drafting Documents: Set Your Sights on Accessible Language
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WebSource™ and ClientDocx™ - - Redefining the Way Members Generate Clients and Growth Their Practices
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Five Reasons to Register Now for the 2012 Symposium
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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
Friday, March 23, 2012 Steve Oshins on Weddell v. H20, Inc: Nevada Supreme Court Affirms Creditor Protection Benefits of Nevada LLCs
Reproduced with Permission by and Courtesy of Leimberg Information Services, Inc. (LISI). For information about how to subscribe to LISI, click here.
“Prohibiting the creditor from exercising the debtor’s management rights reflects the principle that LLC members should be able to choose those members with whom they associate. Thus, the historical rationale for charging order protection was to protect the other members of an LLC where one member has a personal creditor problem.
However, as asset protection planning has evolved and the competition among the states to have the most protective asset protection laws has intensified, the asset protection planners now have the ability to use charging order protected entities to protect their clients’ assets from potential creditors. This tool is so easy, yet it is extremely underused by estate planners who at a minimum should be integrating this form of asset protection planning into their repertoire.”
We close this week with Steve Oshins’ observations on the “hot off the press” case of Weddell vs. H2O, Inc., an opinion issued by the Supreme Court of Nevada on March 1, 2012. As Steve points out in his commentary, this case illustrates the creditor protection benefits of using a Nevada LLC.
Steven J. Oshins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. Steve is a nationally known attorney who is listed in The Best Lawyers in America® and has been named one of the Top 100 Attorneys in Worth magazine. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He has written some of Nevada's most important estate planning and creditor protection laws, including the law making the charging order the exclusive remedy of a judgment creditor of a Nevada LLC and LP (in 2001, 2003 and 2011), the law changing the Nevada rule against perpetuities to 365 years (in 2005) and the law making Nevada the first and only state to allow a Restricted LLC and a Restricted LP creating larger valuation discounts than any other state allows (in 2009). He is also the author of the Annual Domestic Asset Protection Rankings Chart, which can be downloaded on our website under our Free Resources. Steve can be reached at 702-341-6000, x2 or at soshins@oshins.com. His law firm's web site is http://www.oshins.com.
Here is Steve’s commentary:
FACTS:
Between 2000 and 2007, Michael B. Stewart and Rolland P. Weddell entered into a business relationship concerning a number of different projects, ranging from garlic farming to geothermal energy. Several disputes arose between the two parties, ultimately leading to the collapse of their business relationship. Upon the relationship's demise, Weddell filed a complaint asserting numerous claims against Stewart. Stewart also filed a complaint and asserted numerous counterclaims. After a four-day bench trial, the district court found in Stewart's favor on all counts. Weddell appealed the decision.
Stewart and Weddell both owned percentages of Granite Investment Group, LLC (“Granite”) and High Rock Holding, LLC (“High Rock”). In October 2008, in an unrelated matter, the district court granted an application by a creditor to charge Weddell's membership interest in Granite and High Rock, among other Weddell entities, for over $6 million. Pursuant to NRS 86.401.2, the charging order issued by the court entitled the creditor to any and all disbursements and distributions, including interest, and all other rights of an assignee of the membership interest.
Creditor’s Rights under Charging Order
The primary issue in the case was whether the judgment creditor receives any rights to participate in the management of a Nevada LLC upon receiving a charging order over the debtor’s membership interest. The district court had ruled that the charging order against Weddell's membership interests in Granite not only gave the judgment creditor Weddell’s economic rights over the membership interest, but also his managerial rights.
The collection rights and remedies against a member's interest in a Nevada limited liability company are governed by NRS 86.401. This provision recognizes the charging order as a remedy by which a judgment creditor of a member can seek satisfaction by petitioning a court to charge the member's interest with the amount of the judgment. A charging order directs the LLC to make distributions to the creditor that it would have made to the member. As a result, a charging order affects only the debtor's membership interest and does not permit a creditor to reach the LLC assets.
Consequently, the judgment creditor does not step into the shoes of the member. The judgment creditor only receives the rights of an assignee of the member's interest. A judgment creditor, or assignee, is only entitled to the judgment debtor's share of the profit and distributions, takes no interest in the LLC's assets, and is not entitled to participate in the management or administration of the business.
After the entry of a charging order, the debtor member no longer has the right to future LLC distributions to the extent of the charging order, but retains all other rights that the debtor had before the execution of the charging order, including managerial interests. The Supreme Court of Nevada reversed the district court's judgment relating to the scope of the charging order against Weddell's membership interests. The Supreme Court ruled that the charging order only divested Weddell of his economic opportunity to obtain profits and distributions from Granite, not his managerial rights.
COMMENT:
It is no surprise that the Supreme Court of Nevada reversed the district court on the issue of the extent of the rights the holder of a charging order has with respect to the LLC. This decision is in line with decisions in other charging order cases.
This case was decided under the Nevada charging order laws that were modified in the 2003 legislative session and did not include the substantial enhancements made in the 2011 legislative session. See Steve Leimberg's Asset Protection Planning Email Newsletter - Archive Message #180. The 2003 version of Nevada’s charging order laws specifically made the charging order the exclusive remedy of a judgment creditor. However, there were no provisions disallowing the judge from issuing an equitable remedy to find a way around the exclusive remedy language.
For example, the judge could have used one of a number of potential equitable remedies, including the constructive trust theory, the resulting trust theory, the alter ego theory or the reverse veil-piercing theory as a way around the statutory provisions. Maybe none of these potential theories were raised by the attorney for the holder of the charging order or maybe the judge determined that it wasn’t appropriate to go beyond the charging order remedy.
The 2011 legislative changes to Nevada’s charging order laws specifically disallow the issuance of any equitable remedies. Therefore, in future litigation, members of Nevada LLCs will be even more protected than the degree of protection provided by pre-2011 laws.
Planning Opportunities
Prohibiting the creditor from exercising the debtor’s management rights reflects the principle that LLC members should be able to choose those members with whom they associate. Thus, the historical rationale for charging order protection was to protect the other members of an LLC where one member has a personal creditor problem.
As asset protection planning has evolved and the competition among the states to have the most protective asset protection laws has intensified, the asset protection planners now have the ability to use charging order protected entities to protect their clients’ assets from potential creditors. This tool is so easy, yet it is extremely underused by estate planners who at a minimum should be integrating this form of asset protection planning into their repertoire.
By itself, a charging order protected entity almost always causes a creditor to settle a dispute for less than the amount that the creditor would be able to reach if the charging order protected entity did not exist. This is why there are relatively few published charging order cases in comparison to the endless number of litigation cases filed each year. So, at a bare minimum, an LLC (or LP) should be used for almost every client who has sufficient at-risk assets to substantiate the cost of forming and maintaining an LLC (or LP).
Taking this a step further, when the charging order protected entity is combined with an asset protection trust, the odds are even more stacked against a potential creditor from the creditor’s perspective. Thus, there are even fewer published cases involving asset protection trusts. The more roadblocks the planner can include, the more frustrated a potential creditor will get and the better the negotiation will tilt in favour of our debtor clients.
HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!
TECHNICAL EDITOR: DUNCAN OSBORNE
CITE AS: LISI Asset Protection Planning Newsletter #196 (March 22, 2012) at http://www.leimbergservices.com Copyright 2012 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.
CITES: Weddell v. H2O, Inc., 128 Nev.Adv.Op. #9 (Nev., Mar. 1, 2012); NRS 86.401
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.
Sources: Leimberg Information Services & Steven J. Oshins, Esq.
Wednesday, February 29, 2012 February 29th: Fun Facts About Leap Day
Today is February 29th, 2012. LEAP DAY! We thought that it'd be fun to share some fun facts about Leap Day with all of you, thanks to this entry on Yahoo! Work + Money. Enjoy!
2012 is a leap year, meaning that February, the shortest month, has an extra day, bringing the year to 366 days. This notable event comes only every four years. Which means you have an extra 24 hours. So what will you do with yourself? How about heading to Disneyland for 24 hours straight, catching a movie, or spending the day skiing?
Lookups on the Web are taking a leap, including "leap day activities," along with the quadrennial questions: "what is leap year," "why is there a leap year" and "history of leap year." Here, your guide to the day.
When is it? An extra day is added to the month of February every four years. This year, Leap Day is on Wednesday, February 29.
Why we need Leap Day: Usually, our year is 365 days long. Except that it's not: A full cycle of seasons is actually 365 days, 5 hours, 49 minutes, and 16 seconds long, or about 365.25 days. Over time, the extra quarter of a day adds up, and without Leap Day, the calendar would be one day out of sync with the seasons. After 30 years, it would be about a week off, and after 100 years, it would be nearly a month off.
Bing Quock, the assistant director of Morrison Planetarium at the California Academy of Sciences, explains, "Leap Day is added as a correction to the calendar so that it stays in sync with the seasons ... that way, the seasons start on the same day from year to year to year."
The history of Leap Year: Leap Year has been around for 2,000 years, since Julius Caesar created the 365-day calendar, although Caesar's astronomer, Sosigenes, get s credit for adding an extra day in February every four years.
How to celebrate: Fans of Disney parks will be lining up to take advantage of "One More Disney Day" at Disneyland in California and at Magic Kingdom in Florida, which will be open for 24 hours, from February 29 at 6 a.m. until 6 a.m. March 1. Michele Himmelberg, a spokesperson for Disney, said it's the first time in recent memory that theme parks on both coasts will be open to mark the quadrennial event. She confirmed the rides will run all night. Hey, come in your PJs.
Leap Year babies probably have the biggest reason to rejoice -- since they see their birthdate only once every four years. Yahoo! searches are in a festive mood with lookups on "leap year birthdays," "leap year birthday cards," and "leap year party ideas." Good news for ski bums born on February 29: Show your Leap Year birthday date and get a free stay at Mammoth ski resorts.
If you prefer to mark the extra day on your couch, there's always "Leap Day," the movie. The 2010 romantic comedy stars Amy Adams and is based on an Irish tradition that a man must say yes to a woman who proposes to him on Leap Day. Some NBC shows have already run their Leap Day-themed episodes, which included "30 Rock's" alternative-universe idea that Leap Day is celebrated like an actual holiday and even has a mascot, "Leap Day William" (Jim Carrey), who stars in a "Groundhog Day"-type movie with Andie MacDowell. Its message: Take a leap.
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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.
Source: Yahoo! Work + Money Blog by Claudine Zap
Photo Credit: ABCnews.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 TrustSM 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
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.
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