By Steven J. Oshins, Esq., AEP (Distinguished) Nineteen domestic jurisdictions have statutes that allow a person to set up a Domestic Asset Protection Trust (“DAPT”). A DAPT is an irrevocable trust set up by a person (the “settlor”) for the benefit of him/herself and other beneficiaries. Under the statutes of each of those jurisdictions, after a certain waiting period, the assets transferred to the trust by the settlor should be protected from the settlor’s creditors. Affidavit of Solvency Asset protection planners will generally have their clients sign an Affidavit of Solvency which essentially says that the client isn’t making a…
Don’t Require a Prenup for a Trust Beneficiary to Be Eligible for a Distribution!
By Steven J. Oshins, Esq., AEP (Distinguished) I have seen so many trusts drafted with a provision requiring a married beneficiary to have a prenuptial agreement in place in order to be eligible to receive a distribution from the trust. This seems to be a staple in many law firms’ “form” trust agreements. Let’s analyze the logic. The attorney (or many times the client) believes that by requiring that a beneficiary have a prenuptial agreement in place it will therefore almost force the beneficiary to do so and therefore somehow magically protect the trust assets. However, such a provision actually…
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…