Why Not To Use Incentive Clauses in Trusts

By Steven J. Oshins, Esq., AEP (Distinguished) Many attorneys draft incentive clauses into trusts. An incentive clause generally makes additional distributions to the beneficiary upon reaching certain milestones. Probably the most popular incentive clause is one which makes mandatory distributions based on matching the beneficiary’s salary. That sounds great until you actually think through a real-life example and the disastrous results. A REAL-LIFE EXAMPLE Assume that Client has three young children. Child A grows up to be a top surgeon earning $3 million per year. Child B becomes a stay-at-home parent to three wonderful children and is one of the…

The Floating Spouse Provision and More: Designing a Spousal Lifetime Access Trust for Maximum Access and Maximum Divorce Protection

By Steven J. Oshins, Esq., AEP (Distinguished) A Spousal Lifetime Access Trust (“SLAT”) is an irrevocable trust for the benefit of the settlor’s spouse and descendants. The settlor makes transfers to the trust that must come from the settlor’s separate property. If drafted properly, the trust assets are protected from the creditors and divorcing spouses of the settlor and of the beneficiaries and aren’t subject to estate taxes (if using a completed gift version) when the settlor and settlor’s spouse pass away. THE KEY IS IN THE DRAFTING A general fear that many clients and advisors have is that they…

Saving State Income Taxes: NING Trusts and Completed Gift Non-Grantor Options

By Steven J. Oshins, Esq., AEP (Distinguished) Prior to the Trump Tax Act, state income taxes paid were deductible against federal income tax. However, the Trump Tax Act limits the amount of the federal income tax deduction for state income taxes paid, real property taxes paid and sales taxes paid to a cumulative (yes, cumulative!) total of $10,000 per year. The $10,000 is used up for property taxes only for many of our clients. Therefore, state income taxes paid are essentially no longer deductible! This is why state income tax avoidance planning has arguably become the hottest area of estate…

The 2022 Biden Estate Tax Cliff: Preparing After the 1/1/2013 and 1/1/2021 Cliffs

By Steven J. Oshins, Esq., AEP (Distinguished) If you are an estate planner, you likely had your best revenue ever in 2012.  Then you likely annihilated your previous revenue record in 2020.  This happened because of the so-called “fear of missing out” with different tax “cliffs” expected to occur at the end of those two years, thereby causing a commotion among the wealthy. JANUARY 1, 2013 FISCAL CLIFF Rewind back to the year 2012.  President Obama was in office and the $5 million estate and gift tax exemption was scheduled to expire and roll back to only $1 million at…

Protect Against Potential Retroactive Estate Tax Changes

By Martin M. Shenkman, CPA, MBA, PFS, AEP (Distinguished), J.D. The Biden Administration may reduce the exemption retroactively, perhaps even to January 1, 2021!  It’s best to protect against a retroactive tax change. Retroactive tax changes sound unfair! Even Taylor Swift said: “It’s hard to fight when the fight ain’t fair.” But we’ll tell you how to fight that unfair tax fight! The law permits a retroactive tax change. See: Pension Benefit Guaranty Corporation v. R. A. Gray & Co., 467 U. S. 717 (1984); United States v. Carlton, 512 U.S. 26 (1994). The need for revenue, or the desire…

The Strange Case of Dr. Jekyll and Mr. Oshins: Staggered Distribution Trust versus Dynasty Trust

By Steven J. Oshins, Esq., AEP (Distinguished) Testing his theory that in every man dwells a good and an evil force, the reserved Dr. Jekyll develops a formula that separates the two, turning him into an argumentative estate planning attorney named Mr. Oshins who tells it like it is. Dr. Jekyll soon realizes he is becoming addicted to his darker self as he unleashes his opinions on the estate planning industry. In this article, Dr. Jekyll and Mr. Oshins tackle the differences between a Staggered Distribution Trust and a Dynasty Trust. As expected, Mr. Oshins will provide a different view…

The Beneficiary Controlled Trust as the Centerpiece of the Estate Plan

By Steven J. Oshins, Esq., AEP (Distinguished) INTRODUCTION Most estate planning attorneys draft trusts that make mandatory distributions to the beneficiaries upon reaching certain ages.  For example, many trusts pay out one-third upon the beneficiary reaching age 25, one-half of the balance upon the beneficiary reaching age 30 and the balance upon the beneficiary reaching age 35. This is commonly known as a Staggered Distribution Trust since the distributions are staggered over different time periods. The philosophy used in this type of trust design is that the beneficiaries have multiple opportunities to learn from their mistakes. However, Staggered Distribution Trusts…

Which Type of Trust is Most Important for Top 1% Financial Advisors to Know About?

By Steven J. Oshins, Esq., AEP (Distinguished) Are you a financial advisor? If so, you’re likely compensated in large part based on assets under management. Therefore, your interests are aligned with those of our clients. The better you do for them, the better you do for yourself. THE STATE INCOME TAX DRAG Just as it is frustrating for our clients in states with a state income tax to pay that tax on taxable dividends and capital gains, it must be nearly as frustrating for the financial advisor whose income is also adversely affected by this state income tax drag. What if…

Situs Your Trust in a First-Tier Trust Jurisdiction

By Steven J. Oshins, Esq., AEP (Distinguished) and Mark Dreschler Not all jurisdictions have favorable trust laws. In fact, most jurisdictions’ trust laws are inferior in comparison to those of the first-tier trust jurisdictions. Despite the limitations found in most trust jurisdictions laws, estate planners generally limit their planning to the client’s home jurisdiction. This article will provide multiple reasons not to do so and will explain some of the opportunities that are lost by failing to consider a top trust jurisdiction. COMMON REASONS TO SITUS A TRUST IN A TOP-TIER TRUST JURISDICTION Following are some of the common reasons…

Trustasaurus: The Gradual Extinction of the Age 25, 30 and 35 Trust

By Steven J. Oshins, Esq., AEP (Distinguished) Read nearly every trust drafted by nearly every law firm and you’ll see provisions that make mandatory distributions at staggered ages. Why is this done? I have no idea. Maybe because their standard “form” trust agreement does that??? Is it good planning? Absolutely not! STAGGERED DISTRIBUTION TRUST A “Staggered Distribution Trust” is a trust that makes mandatory staggered distributions upon the beneficiary reaching staggered ages. The most widely-used provisions distribute one-third at age 25, one-half of the balance at age 30 and the balance at age 35. The philosophy of doing this is…