Asset Protection Strategies and Forms

Product Description

A full range of proven structures for safeguarding assets, zeroing out estate taxes, and reducing income taxes. Complete trusts and individual provisions … from simple living trust modifications to sophisticated international asset protection structures … will broaden and strengthen the options you present to clients. Each structure diagrammed and explained, with supporting law, tax considerations, case studies, and pattern clauses.

The living trust has become almost mandatory in estate planning, but it is frequently offered without any thought to safeguarding the inheritance. However, children’s inheritances in a living trust can be readily protected from creditors if it is made discretionary or includes shifting language.

Alan Eber’s Asset Protection Strategies and Forms offers techniques and tools ranging from simple living trust modifications to sophisticated international asset protection structures.  Mr. Eber, a pioneer in the asset protection field, provides everything needed for implementation.  He:

1. Presents each of his protective approaches with easy-to-follow text
2. Illustrates the structure with diagrams that can be shown to clients
3. Describes the structure’s advantages in language clients can understand
4. Cites the supporting law, both domestic and international
5. Recommends specific jurisdictions
6. Discloses any risks
7. Details the tax considerations
8. Shows different usages with case studies
9. Speeds your drafting with pattern clauses and trusts

Start-to-finish coverage

Asset Protection Strategies and Forms begins with client forms that will help you avoid common problems and takes you all the way through the highest protection sophisticated international trust structures can offer. You receive:

• Checklist to avoid intentionally or constructively fraudulent transfers
• Ensuring that your asset transfer is not making the client insolvent
• Providing inside and outside protection
• The visual planning technique
• Shields, accumulation of contracts, and screens
• The art of funding

Domestic trusts

• Advantages of domestic asset protection trusts
• Key clauses to consider
• Irrevocable trusts with rights of revocation for protector and independent trustee, with forms
• The UTC standard for judging a trustee’s discretion, with recommended clauses
• Clause prohibiting distributions in discharge of settlor’s support obligations
• An easy-to-understand shifting trust, with forms
• The importance of proper language in shifting trust provisions, with pattern clauses
• Jurisdictions where a disclaimer is not a fraudulent transfer, with clauses
• Support trust provisions for settlors concerned that the discretionary trustee may not provide a beneficiary sufficient support
• Spendthrifting a trust by defining education and support, with language
• Restraint on alienation pattern clauses
• Protecting income and principal
• Obtaining additional safety by blending in features of other protective trusts
• Leveraging assets exempt from the generation skipping transfer tax
• Making trusts more flexible by delegating certain powers to trust protectors, with provisions
• Pattern letters of wishes
• Providing more control to beneficiaries, with forms
• How an intentionally defective grantor trust transaction is structured, with trust language and tax considerations
• Pattern situs change clause
• Teaching clients to look upstream with LLC or pre-inheritance trust
• The wonderfully effective concept of opportunity shifting

International Trusts

• Advantages and disadvantages
• Retaining full indirect control of transferred assets
• Jurisdictions that do not enforce U.S. judgments
• Common objections to international trusts, with responses
• The problems with international business corporations
• How to protect yourself against the most common malpractice danger, with form
• What I have learned to ask in the initial phone call to avoid later problems, with checklist
• How to obtain buy-in from the client’s financial advisor and accountant
• Selecting a trustee and bank
• Negotiating liability language with trust companies, with recommended phrasing
• Distinctive feature chart of 10 commercial and 10 private foreign banks
• Creating a wall between hot and cold assets
• How to create a trust that is domestic for IRS reporting purposes but foreign when threatened, with forms
• What the letter of wishes should at minimum direct, with examples
• The collapsing and withdrawing bridge techniques
• Countries that permit the use of bearer stock
• Recommended jurisdictions for private trust companies, with characteristics of each
• Powers typically granted to a trust protector, with pattern provision language
• Tax considerations
• Pattern flight, duress and limited power of appointment clauses

Family limited partnership

• Restricting the withdrawal or distribution of capital
• Ensuring negative income tax consequences for a creditor who obtains a charging order
• Permitting the redemption of seized assets
• Making permanent the general partner’s income stream
• Limiting recourse to partnership assets
• Minimizing the ability of a creditor or trustee in bankruptcy to dissolve
• Appropriate and inappropriate assets
• Obtaining valuation discounts
• Gifting to an FLP
• Funding a grantor retained annuity trust (GRAT) with an FLP
• The double discount

Limited liability companies

• Drafting suggestions to improve asset protection aspects, with sample clauses
• Why single-person LLCs are risky asset protection entities
• Advantages and risks of international LLCs
• Maximizing asset protection aspects, with recommended clauses
• Limiting managing member liability
• The guaranteed salary solution
• Appropriate and inappropriate assets
• Effect of a charging order
• Tax issues
• Funding a GRAT with an LLC
• Valuing the gift

Insurance

• The advantages of owning insurance through an LLC or FLP
• Insurance defective trusts
• Dynastic insurance trusts
• Planning with cash value life insurance
• Financed insurance
• Captive insurance
• Advantages of private placement insurance

Forms

Estate Planning Worksheet, Spousal Conflicts Disclosure Letter, Anti-Abuse Clause, Financial Affidavit

Domestic Trusts

Trustee Indemnity Clause, Provision for Existing Obligation of Settlor, Revocable Trust, Irrevocable Trust, Irrevocable Trust With Right of Revocation for Protector, Irrevocable Trust With Right of Revocation for Independent Trustee

Clause Providing Trustee Discretion to Acquire Assets for Beneficiary, Clause Establishing a Discretionary Trust, Clause Establishing the Discretionary Standard, Clause Prohibiting Distributions in Discharge of Settlor’s Support Obligation

Shifting Trust: Terminates Interest and Creates a Discretionary Interest, Shifting Trust: Converts from Mandatory to Discretionary Trust

Disclaimer Clause, Disclaimer Clause Into Credit Shelter Trust, Beneficiary’s Support Is Primary, Definition of Education for a Support Trust, Spendthrift Provision #1, Spendthrift Provision #2

GSTT Provision, Protector Provision, Committee of Protectors Provision, Beneficiary Controlled Trust: Authority of Distribution Trustee, Beneficiary Controlled Trust: Removal of Distribution Trustee, Presently Exercisable Retained General Power of Appointment, Presently Exercisable Conveyed General Power of Appointment, IDGT: Grantor Trust Provision

Authority to Change Jurisdiction, Authority to Merge or Sever Trusts, Trustee Power to Invest in Non-Income Producing Property and to Invest Without Diversification, Exculpation of Trustee for Loss from Retention of Property, Exculpation of Trustee for Acts or Omissions

International Trusts

Client Worksheet, Conflict Disclosure Letter and Consent, Attorney Retainer Agreement, Statement Regarding the Money Laundering Control Act, Letter Declining Engagement, Letter After Client Declines Engagement

Client Letter Affirming Trust is Tax Neutral, Agreement Appointing Investment Advisor, Letter Recommending a Trustee (with Choices), Agreement Retaining the Trustee, Affidavit of Solvency, Declaration of Source of Funds, Attorney Letter of Recommendation to Trust Company, Attorney Letter of Recommendation to Be Given to Bank

International Asset Protection Trust, Letter of Wishes, Aide Memoir to My Attorney (to Keep Letter Under Attorney-Client Privilege), Clauses for a Collapsing Bridge Trust, Amendment to Turn Standard FLP into Collapsing Bridge IAPT, Merger of Trusts, Excluded Persons Clause

Postnuptial Agreement, Employment Agreement, Hybrid Buy-Sell Agreement, Consent to Stock Buy-Sell Agreement, Client Letter Regarding Proper Execution, Transfer and Assignment of Assets, Employment Agreement for an FLP

17 practice tips from the book

1. Incorporating asset protection into estate planning.  “Estate planners typically leave assets exposed to creditors. To protect the estate in this example, the asset protection planner can either:
   • Make the trust discretionary. A “discretionary” trust leaves it to the trustee’s discretion (subject to certain safeguards) to select which beneficiaries will receive distributions and when they will receive them.
   • Place “shifting” language in the trust. A shifting trust (like the “shape shifter” of Star Trek fame) shifts its purpose, its terms and/or its beneficiaries if a creditor tries to penetrate it. Upon the “shift,” the trust becomes discretionary and creditors are thereby prevented from penetrating the trust.”

Domestic Trusts

2. Benefits of trusts.  “A non-self-settled discretionary trust, utilized with a Letter of Wishes, a Protector, a Distribution Trustee and Powers of Appointment and utilizing the generation-skipping transfer tax exemption is a flexible trust able to adjust to changed family situations and tax laws.  Trust assets are protected from estate tax, divorce and creditors for generations as the beneficiary has no property right that a judge could pass to a predator.”
3. Common mistake and solution.  “Many lawyers set up non-self-settled trusts as part of their regular practice and then destroy their asset protective capabilities by making the trust distribution pattern mandatory.  If asset protection is a goal, the trust must be discretionary.
   “A shifting trust provision is particularly helpful after you have suggested to your client an excellent asset protected and extremely flexible trust (a non-self-settled, discretionary, spendthrifted trust, with a letter of wishes and a protector), but the client is not able to understand the benefits and states: “All I want is to give each of my two children half of my estate in equal parts when they turn 25, 30 and 35 and do so in a way they will be asset protected.”  The shifting trust allows you to give the client ease of understanding while preserving considerable (but not total) asset protection and flexibility.  The trust states….”
4. Specific conditions.  “The trustee’s discretion must be broad enough to be exercised in connection with factors that take into account more than the beneficiary’s financial condition.  For example, a trust may provide that the trustee should withhold distributions if the beneficiary is taking drugs, or is in litigation, or is experiencing other difficulties that would make it unlikely that he would benefit from the trust assets as the settlor intended. This broad discretion will tend to counter a public policy argument that the trust arrangement is being misused to allow a beneficiary to avoid creditors.”
5. More control.  “From an asset protection and estate planning viewpoint, assets inherited in trust are far more advantageous then assets received outright. However, many beneficiaries want to receive assets outright because they believe that an inheritance in trust while advantageous will not give them the control over the assets and that the trustee will not be responsive.  To give the beneficiary the control he wants, the trust can be drafted as a Beneficiary Controlled Trust….”
6. Conveyed special power.  “If a powerholder has a special power of appointment, he is not deemed to be the owner of the property subject to the power. The power doesn’t cause trust assets to be included in the powerholder’s estate for estate tax purposes and can be given without adverse tax consequences. An exercise or release of the power will not constitute a taxable gift.  This arrangement is beneficial where the settlor desires flexibility in his plan to allow for changing needs and circumstances of beneficiaries in the future. For example, by giving his spouse a lifetime and/or testamentary power to appoint corpus among his issue, the spouse could, without any gift or estate tax consequences, exercise her discretion to change the shares of the children or other issue in the future to accommodate their respective needs or changing tax circumstances.”
7. Intentionally defective grantor trust (IDGT).  “The IDGT is one of the most powerful estate planning strategies available, particularly when it is dynastic and used with other wealth shifting techniques.  An asset can be “sold” to an IDGT income and capital gains tax-free. Provided it was sold for an installment note or a Self Canceling Installment Note (SCIN) of equal value there will be no gift tax. All future income (not including the interest paid on the Note) that the asset generates will generally be taxed to the seller. If planning requires, the IDGT can be structured so the beneficiary pays the tax.  The tax the seller pays on future income in the IDGT further reduces the seller’s estate. The asset in the IDGT appreciates outside the seller’s estate.  IDGTs provide asset protection for assets transferred to them.  The IDGT transaction usually takes the following form….”
8. Powers available.  “A key feature of the IDGT is including trust provisions that will cause the trust to be a grantor trust, yet not be included in the grantor’s estate for estate tax purposes.  The following powers are exercisable solely in a nonfiduciary capacity without approval or consent of any person acting in a fiduciary capacity….”
9. Transferring family businesses.  “Opportunity shifting allows dad the opportunity to shift business opportunities into an entity he sets up for his children, and permits him to afford these opportunities to his children asset and divorce protected and transfer tax free.  Rather than start a business exposed to creditors, or grow the business and have transfer tax concerns, the GSTT exempt trust portion of the Trust that was set up for the child by his parents establishes the LLC to own the business in asset and divorce protected and transfer tax free mode.”

International Trusts

10. Is my money safe?  “The concern over foreign institutions is misplaced. Perhaps the fear comes from stories of those who have not used licensed companies but have used storefront practitioners. None of my clients has ever lost money to financial misdoings of foreign banks or trust companies (although some have been upset at fees for certain services performed by the bank or trust company).”
11. Grantor is in control.  “IAPTs can be self-settled. That is, the IAPT will protect the settlor’s assets even though the settlor set the trust up for his own benefit. This permits the settlor to retain a control over trust assets that would not be permitted in most states.  Domestically, generally, self-settled trusts afford no protection.”
12. Technique exempt from IRS reporting.  “The Low Profiler is most useful for those clients who:
    • Do not want to spend the time and money involved in filing IRS reports.
    • Are concerned that filing will raise their IRS profile.
    • Fear that creditors will obtain their filing.
    • Want no trace of their IAPT to be publicly available until after they are in litigation and only then, if and when the U.S. trustees are removed, does the trust turn foreign for IRS reporting purposes and only then does it need to begin to file the 3520s and 3520As.”

13. Common error.  “Unfortunately, letters of wishes are rarely written and discretionary trusts themselves provide little guidance. They either:
    • Say nothing about what the trustee should consider in exercising discretion.
    • Contain the typical “ascertainable standard” (“the trustee may make distributions for a beneficiary’s health, education, maintenance, and support”).
    • We encourage settlors to….”

14. High-comfort technique.  “The Collapsing Bridge structure is appropriate for the American who has little foreign experience and/or who wants to maintain maximum control over his assets until a creditor or lawsuit looms.”
15. Protectors becoming widespread.  “Irrevocably transferring property to a trustee has caused clients and advisors concern due to the lack of control over the transferred assets. Just the word “irrevocable” raises anxiety due to the fear that future change may negate the purpose, taxability, distributions or other benefits originally contemplated by a trust agreement. Appointment of a Protector can offset those reservations and provide a safety net for administering long term trusts.”

Techniques

16. Common error.  “The greatest planning gift a client can give children is to set them up in a non self-settled trust that will protect their assets from creditors, predators, divorcing spouses, estate taxation, and provide them with a vehicle through which to run their business or professional lives.  Unfortunately, many attorneys counsel clients to distribute trust assets to their children at certain ages. By doing so, the children lose the protection of their non self-settled trust.”
17. Minority discount.  “A client places a $3 million parcel of real estate into an FLP/LLC, and transfers a 99% interest to children. With a 33 1/3 % discount applied to the 99% interest, the client and the client’s spouse’s gift tax exclusion will negate any gift taxation. With a one percent interest, the client totally controls the FLP/LLC and the real estate. If 30 years later the asset is worth $15 million, it is not in the client’s estate because it has been given to the children.”

Asset Protection Strategies & Forms offers a full range of proven structures for safeguarding assets, zeroing out estate taxes, and reducing income taxes. Written for both sophisticated planners and estate planners new to the field, this book offers techniques ranging from simple living trust modifications to sophisticated international asset protection structures.

This edition features:

• State statutes to consider when choosing the situs of a DAPT.
• Nevada Supreme Court confirms that properly created DAPTs within the state of Nevada are protected from spousal support and child support claims.
• Why South Dakota trusts can fill certain gaps in a plan that uses Nevada trusts. §4:311.
• Strengthening the case for the International Asset Protection Trust (IAPT). Recent developments in the Alaska courts raise major concerns over using Domestic Asset Protection Trusts (DAPTs). If the settlor is not a resident of the state under which the DAPT is established or lives in a state that does not recognize DAPTs, the DAPT may be worthless. §5:315
• Corporate tax issues. The Tax Cuts and Jobs Act of 2017 radically changes the federal income taxation of corporations. Here are the key points that advisers should be aware of. §8:07
• Planning in California using an LLC and a Private Retirement Trust. California residents have the opportunity to combine the potent areas of exemption planning and equity stripping using a Private Retirement Trust (“PRT”) pursuant to California Code of Civil Procedure §704.115. §10:44
• Counter-intuitive planning ideas with life insurance. Alternative uses of life insurance offer interesting planning opportunities for the right situation including: family bank planning; college saving; and split dollar plans insuring younger generations. §11:17
• Guidance on administration of charitable trusts. In private letter rulings , the IRS rules that failures of administration by a trustee were too much to overcome and the trusts were treated as though they did not meet the definition of Charitable Remainder Unitrusts under IRC §664. §13:44
• Expansion of Chapter 13 to cover administration of corporations and other entities. A checklist of the minimum items that should be considered for each entity to avoid piercing or reverse piercing of the corporate veil is included. §§13:60-13:62.

REVISION 6 HIGHLIGHTS

The latest edition of Asset Protection & Forms  features—

• State statutes to consider when choosing the situs of a DAPT.
  • Nevada Supreme Court confirms that properly created DAPTs within the state of Nevada are protected from spousal support and child support claims.
  • Why South Dakota trusts can fill certain gaps in a plan that uses Nevada trusts.
• Strengthening the case for the International Asset Protection Trust (IAPT). Recent developments in the Alaska courts raise major concerns over using Domestic Asset Protection Trusts (DAPTs).
• Corporate tax issues. The Tax Cuts and Jobs Act of 2017 radically changes the federal income taxation of corporations.
• Planning in California using an LLC and a Private Retirement Trust. California residents have the opportunity to combine exemption planning and equity stripping using a Private Retirement Trust (“PRT”).
• Counter-intuitive planning ideas with life insurance. Alternative uses of life insurance offer interesting planning opportunities for the right situation.
• Guidance on administration of charitable trusts. In private letter rulings , the IRS rules that failures of administration by a trustee were too much to overcome and the trusts were treated as though they did not meet the definition of Charitable Remainder Unitrusts.
• Expansion of Chapter 13 to cover administration of corporations and other entities. A checklist of the minimum items for each entity to avoid piercing or reverse piercing of the corporate veil is included.