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

This past decade has arguably seen more changes in the estate planning industry than ever before. This article will highlight many of these changes by handing out awards in a number of different categories.

#1. MOST SUBSTANTIAL CHANGE IN THE LAW AWARD

WINNER: SUBSTANTIAL INCREASE IN ESTATE TAX EXEMPTION. The change in the law that has been the most significant was the substantial increase in the federal estate tax exemption. No other change in the law played such a prominent role in the way estate planners plan since this essentially turned estate tax planners into income tax planners since roughly 99.9% of people are now no longer subject to the federal estate tax.

RUNNER-UP: ENACTMENT OF THE SECURE ACT. The SECURE Act requires beneficiaries of retirement accounts to withdraw the funds within ten years. This spells the end of the stretch IRA whereby beneficiaries had been able to stretch the taxable distributions over their lifetimes. This congressional bait-and-switch has caused many people to make contributions to retirement plans under the belief that the stretch-out would be an economic home run for the beneficiaries. That is no longer the case.

#2. MOST INNOVATIVE PLANNING AWARD

WINNER: BASIS STEP-UP PLANNING. With roughly 99.9% of people not being subject to a federal estate tax, estate planners are now income tax planners. With so many of our clients’ parents and grandparents dying with so much unused estate tax exemption remaining, planning concepts have emerged whereby certain types of irrevocable trusts can be established to include the client’s parents and grandparents and give the first of them to di a formula general power of appointment to cause estate inclusion over low basis assets in order to also get a basis step-up for income tax purposes.

RUNNER-UP: HYBRID DOMESTIC ASSET PROTECTION TRUST. Asset protection has undoubtedly become more and more important as a part of estate planning. Decades ago, the Foreign Asset Protection Trust (“FAPT”) was all the rage. Then came the Domestic Asset Protection Trust (“DAPT”) which has so far proven to have a great track record, however with almost no case law to back it up, thereby causing part of the industry to question whether it works for a resident of a non-DAPT jurisdiction. Enter the Hybrid DAPT which a third-party asset protection trust which can (but almost never should) be turned into a DAPT. Because it’s a third-party trust rather than a self-settled trust, it doesn’t have the perceived flaw of a FAPT or a DAPT.

#3. BEST TRUST JURISDICTION AWARD

WINNER: NEVADA AND SOUTH DAKOTA (tie). According to the estate planning industry, the best trust jurisdictions (in alphabetical order) are Alaska, Delaware, Nevada and South Dakota. However, Nevada and South Dakota have clearly distanced themselves from all other states in the key areas which are Dynasty Trusts, Domestic Asset Protection Trusts and Decanting). The fact of the matter is that it’s time for the estate planning industry to stop living in the past.

RUNNER-UP: DELAWARE, TENNESSEE AND ALASKA (tie). No “best” list can fail to include Delaware which continues to be a powerhouse trust jurisdiction. It has excellent laws for the most part and a number of trust companies where the trust officers understand the different types of trusts. Tennessee has been the most underrated trust jurisdiction for many years and should be mentioned among the top jurisdictions. Alaska seems to have become the forgotten top-tier trust jurisdiction, but its laws are better than Delaware’s.

#4. BEST AREA OF PRACTICE AWARD

WINNER: ASSET PROTECTION. Hands down, asset protection planning has been the best area of practice over the past decade. It helps a large number of people since it doesn’t require the client to have a high net worth. There are so few planners even opening the asset protection conversation, so from a supply/demand standpoint it leads the pack. And it is relatively easy planning once the planner has an understanding of what works and what doesn’t work.

RUNNER-UP: STATE INCOME TAX PLANNING. State income tax planning was suddenly elevated to center stage in late 2017 when the State & Local Tax deduction (“SALT deduction”) against federal income tax was capped at $10,000 per year. The phones were ringing more than ever once residents of states with a high state income tax realized that they were the unlucky “losers” of the 2017 tax act. Enter state income tax planning and the sudden popularity of different types of non-grantor trusts to avoid state income tax. This planning will continue to rise in popularity over the next decade as long as there is a SALT deduction cap.

#5. MOST UNFAIR LAW CHANGE AWARD

WINNER: STATE & LOCAL TAX DEDUCTION CAPPED AT $10,000. Most of our clients are already past the $10,000 deduction against federal income taxes merely as a result of their real property taxes. Therefore, this $10,000 cap on deductibility of state & local taxes against federal income taxes essentially makes state income taxes no longer deductible. This change has been a boon to estate planners who are now setting up more Incomplete Gift Non-Grantor Trusts (“ING Trusts”) than ever before to avoid state income taxes on income not sourced to the client’s home state, so it’s been great for estate planners, but there is no doubt that this $10,000 cap has been unfair, especially to those residents of states with a high state income tax.

RUNNER-UP: ENACTMENT OF THE SECURE ACT. As noted above, the SECURE Act was a congressional bait-and-switch that has caused many people to make contributions to retirement plans under the belief that the stretch-out would be an economic home run for the beneficiaries. How fair is it to enact a law encouraging savings and then sweep the rug out from under the tax-deferral strategy after the taxpayer relied on it for so many years?

SUMMARY

The 2010 to 2019 decade has been a decade of adjustment as planners had to learn to change from estate tax planners into income tax planners and asset protection planners.

RELATED EDUCATION

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 soshins@oshins.com or at his firm’s website, www.oshins.com.