Have you been naughty or have you been nice in 2019? This article is directed towards all estate planners, including attorneys, accountants, trust officers, life insurance agents and financial planners. This will help you decide whether you’re been naughty or you’ve been nice.
- Staggered Distribution Trusts: If you encourage your clients to create trusts that make mandatory outright distributions to the clients’ children upon reaching staggered ages, then you’re on the Naughty List. This subjects the trust assets to the creditors and divorcing spouses of the children. Trusts should generally be designed to keep the assets in continuing trusts so they are protected.
- Needlessly Paying State Income Taxes: If you see that your client pays substantial state income taxes on taxable income that isn’t needed and you fail to advise your client to consider an Incomplete Gift Non-Grantor Trust (“ING Trust”), then you’re on the Naughty List. As estate planners, we are supposed to look for opportunities to save taxes for our clients. With the State & Local Tax Deduction now limited to $10,000 per year, state income tax planning should now be a huge part of every estate planner’s business.
- Not Discussing Asset Protection: If you don’t discuss asset protection with your clients, then you’re on the Naughty List. Most of our clients are worried about protecting their hard-earned wealth. They don’t always know to ask how to protect it. It’s your job to be proactive and raise this as a discussion topic during your meetings.
- Not Mentioning a Domestic Asset Protection Trust (“DAPT”) to a DAPT State Resident: If your client is a resident of one of the 19 jurisdictions that has a DAPT statute and you don’t advise your client to set up a DAPT, then you’re on the Naughty List. This is a no-brainer. We know for a fact that it works. There is no question. And the client doesn’t need to pay an annual co-trustee fee. It’s a one-time attorney’s fee to buy protection for the rest of the client’s life! In fact, it is inconceivable that any resident of a DAPT state with even as little as $1 million in net worth doesn’t have a DAPT. That is generally the fault of the advisors.
- Using a Regular DAPT or a FAPT rather than a Hybrid DAPT for a Non-DAPT State Resident: If your client isn’t a resident of one of the 19 jurisdictions that has a DAPT statute, then there is nothing more protective than a Hybrid DAPT since it’s really just a third-party trust with a clever marketing name. Except in rare instances, there is no good reason not to put your client in the strongest position to protect the assets as possible. If your go-to strategy is either a regular DAPT or a Foreign Asset Protection Trust (“FAPT”) rather than a Hybrid DAPT, then you’re on the Naughty List.
- Always Using the Client’s Home State’s Trust Laws Rather than those of a Leading Trust Jurisdiction: A trust can use any state’s trust laws, so why limit yourself to always using the client’s home state’s trust laws? That is short-sighted when there are often asset protection, divorce protection, income tax, estate tax, decanting and/or other reasons to use the trust laws of a leading trust jurisdiction, such as Nevada or South Dakota. If you only use your client’s home state’s laws, then you’re on the Naughty List.
- Advising your Clients to Hurry and Make Gifts When they Shouldn’t: Many of our clients have a high net worth, but yet are under the federal estate tax exemption. For those clients who are under the estate tax exemption, many advisors will push them to make gifts in case the exemption is reduced which at this point is scheduled to occur at the beginning of the year 2026. There is plenty of time to decide. No client should be pressured right now. If the client makes such a gift and dies well below the estate tax exemption, then the client’s heirs will have lost the step-up in income tax basis because the client was pressured to over-gift. If you are advising clients who are under the exemption to make substantial gifts, then you’re on the Naughty List.
- Failing to Consider Income Tax Basis Planning: Since roughly 99.9% of people in the United States would have no federal estate tax were they to die today, most people are dying with a substantial amount of unused federal estate tax exemption that could have be applied to low basis trust assets using certain advanced estate planning techniques. Therefore, it has become relatively customary to ask clients whether they have any living parents or grandparents who don’t have taxable estates and whether we might be able to use their unused estate tax exemption to give them a power over the client’s low basis assets to obtain a basis step-up. If you never consider income tax basis step-up planning in the current tax planning environment, then you’re on the Naughty List.
If you’re an estate planner and you’re not on the Naughty List, then CONGRATULATIONS, you’re on the Nice List!
If you would like to learn more about some of the techniques discussed above, there are a number of educational programs and marketing kits that Steve Oshins has put together for us that may be of interest to you.
- The Hybrid DAPT
- Asset Protection Other than DAPTs: Overlooked Alternatives That Will Grab Your Clients’ Attention!
- The NING Trust: Saving Significant State Income Taxes for Your Clients in High State Income Tax Jurisdictions
- Advanced-Level Estate Planning Sales & Marketing Kits
- Steve’s FREE State Rankings Charts
ABOUT THE AUTHOR
Steven J. Oshins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He was named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor. Steve was also named one of the Top 100 Attorneys in Worth and is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates Lawyer of the Year in 2012, 2015 and 2018 and Tax Law Lawyer of the Year in 2016 and 2020. He can be reached at 702-341-6000, ext. 2, at firstname.lastname@example.org or at his firm’s website, www.oshins.com.