Estate Planning Attorney, Philip Kavesh, and President of The Ultimate Estate Planner, Inc. recently interviewed nationally-known estate planning and asset protection attorney, Steve Oshins.
The interview consisted of a number of questions related to estate planning for large estates. Following are some of the highlights of the interview.
Phil Kavesh: What do you consider a large estate?
Steve Oshins: I would define “large” as $30 million or more. Roughly half of my clients are over that number and half are under that number.
Phil Kavesh: What does the $30 million-plus client think about?
Steve Oshins: These clients generally know that they won’t ever have to worry about running about money. Therefore, protecting their assets from creditors is often one of their primary objectives which leads to a lot of Domestic Asset Protection Trusts and Hybrid Domestic Asset Protection Trusts.
Phil Kavesh: Please describe Domestic Asset Protection Trusts and also how you decide whether to use a regular version versus a Hybrid version.
Steve Oshins: A DAPT is an irrevocable trust set up using one of the states that has a DAPT statute. The settlor can be a discretionary beneficiary of his/her own trust and protect the trust’s assets from the settlor’s creditors. Nevada is generally considered the #1 DAPT state with South Dakota a close #2. The Hybrid version doesn’t include the settlor as a discretionary beneficiary but allows a trust protector to be able to add the settlor as a beneficiary at a later date (which should rarely ever be done). The Hybrid version is the best way to design these for a client who doesn’t reside in a leading DAPT jurisdiction since the trust will also be protected under that client’s local state’s rules unless the settlor is actually added in as a beneficiary. This increases the probability of success in a settlement or a court ruling. With either version, the client is generally the investment trustee and uses a friend or a trust company as the distribution trustee. The client retains the power to fire and hire trustees. At least one trustee must reside in the state that is selected as the governing law for the trust.
Philip Kavesh: You’ve spoken about protecting assets from creditors. What do the wealthy do in relation to saving estate taxes?
Steve Oshins: The wealthy are generally ultra-concerned about estate taxes since the federal tax rate can eat away at a lot of their wealth. Therefore, a lot of our planning revolves around gifts and installment sales to long-term Dynasty Trusts, often using valuation discounts by transferring minority interests or non-voting interests in business entities in order leverage the gift tax exemption.
Phil Kavesh: What are some of the common ways to do this?
Steve Oshins: There are a lot of variations, but one of my favorite structures is to have one spouse set up a Completed Gift Hybrid DAPT for the benefit of his/her spouse and descendants and the other spouse set up a Completed Gift Hybrid DAPT for the benefit of descendants, but not for spouse. In either case, the settlor can be added in as a beneficiary (but should only be done in an emergency), but yet completed gifts can be made to these trusts. We then have the clients gift minority interests or non-voting interests of their business (or a business entity that owns their brokerage assets or real estate or promissory notes receivable or other assets) and have a business valuation appraiser prepare an appraisal to apply an appropriate valuation discount. Like I said, this is just one of many options.
Phil Kavesh: What else do you often do for wealthy clients?
Steve Oshins: Probably the most popular planning nowadays is state income tax planning given that state income taxes are only deductible against federal income taxes up to $10,000. The wealthy who live in states with a high state income tax will often set up NING Trusts (incomplete gift non-grantor trusts) which are incomplete gift trusts that are designed to avoid state income taxes. Other clients will set up completed gift non-grantor trusts to accomplish the same state income tax avoidance while simultaneously avoiding estate taxes and providing protection from creditors. This is mostly done when the client is going to sell a business or other capital asset, but also works well when the client has assets that throw off substantial taxable income tax isn’t sourced to the client’s home state for state income tax purposes.
Phil Kavesh: Do you have any final comments?
Steve Oshins: My final comment is that we only hit a small part of the planning that is done for the wealthy clients. There are numerous alternative structures. Each client fact pattern stands on its own. The key is to spot the opportunities and to be able to communicate the opportunities to a potential client. The worst they can say is no. But if there is value in the advice given, whether in the form of creditor protection or tax savings, the potential client will more often than not become a client. Thank you so much for the interview!
RELATED EDUCATION
If you found this article interesting, you might also be interested in these other educational programs and products by Steve Oshins:
- The Spousal Lifetime Access Trust: Avoiding the Reciprocal Trust Doctrine
- Fear Factor: “Protecting Assets by Getting into the Creditor’s Head and Controlling His Mind”
- The Spousal Lifetime Access Trust: A Gifting and Creditor Protection Technique
- Estate Planning Techniques in a Time of Low Interest Rates
- The Installment Sale to an Intentionally Defective Grantor Trust
- The Grantor Retained Annuity Trust: Significant Estate Tax Savings with Nearly Zero Gift Tax Risk
- 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 has been named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor and one of the Top 100 Attorneys in Worth. He is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates/Tax Law Lawyer of the Year in 2012, 2015, 2016, 2018, 2020 and 2022. He can be reached at 702-341-6000, ext. 2, at soshins@oshins.com or at his firm’s website, www.oshins.com.