A survey of planning vehicles for estate planning. With an overview of some of the more complex currently employed strategies

1. PROTECTING
YOUR ASSETS
Sophisticated next steps to ensure
the success of your estate plan

2. DISCLAIMER
 CIRCULAR 230 NOTICE: To ensure compliance with
requirements imposed by the IRS, please be advised that any tax
advice contained in this communication (including any
attachments) was not intended or written to be used, and cannot
be used, for the purpose of (i) avoiding penalties under the
Internal Revenue Code or (ii) promoting, marketing or
recommending to another party any transaction or matter
addressed herein.

3. Over the Compound
Wall
•
Asset protection is a
collection of structures that
protect assets from attack
•
Asset Protection is putting
a portion of your net worth
behind some obstacles.
The more obstacles, the
greater the protection.
•
Asset Protection is
planning for future
liabilities

4. WHY YOU NEED ASSET
PROTECTION
 Creditor Protection
 Safeguard against law suits for malpractice in high risk
professions
 Protection from law suits from personal injury
 Tenants in a rental property
 Car accidents
 As an alternative to prenuptial agreements

5. Asset Protection Vehicles
Strategies to Employ
Family Limited Partnerships/LLCs
Beyond the essential protection plans
which include:
Credit Shelter Trusts
•
Wills
•
Health Care Proxy
•
Durable Power of Attorney
Living Trusts
•
Living Will and Conservator
Designation
GRATs and QPRT
•
HIPAA Medical records release
The sophisticated estate plan will
include various combinations of
these vehicles.
Life Insurance Trusts

6. FAMILY LIMITED PARTNERSHIPS
General Partner 0-1%
Has Control
Has liability
Limited Partner
80%
No Liability
No Control
Limited Partner
10%
No Liability
No Control
Limited Partner
10%
No Liability
No Control

7. FAMILY LIMITED PARTNERSHIPS
Corporation as GP 0-1%
Has Liability
Has Control
You as Primary LP
80%
No Liability
No Control
You can be shareholder
You can be director
You can be an officer
Personal Assets Protected
Successor as LP
10%
No Liability
No Control
Successor as LP
10%
No Liability
No Control

8. Asset protection with
FAMILY LIMITED LIABILITY
COMPANY

9. FAMILY L.L.C.
Manager
0-1%
Has Liability
Has control
Member
80%
No liability
No control
Member
10%
No liability
No Control
Member
10%
No Liability
No Control

10. How it Can Work
• Limited Partners have no
liability for entity debts
• General Partner has
liability, but only subject to
corporate assets
• Creditors of Limited
Partner can get “Charging
Order”
• Charging Order no
attractive to creditors

11. IMPROVE „FLP‟ AND „LLC‟
PROTECTION
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Suggested Steps to take
Choose an asset protection state for formation
Non-asset protection purpose = true business purpose for
formation
Non-spousal Partners
Non-family Partners
True Capitalization
Non-asset Protection Purpose
FORMALITIES
No Fraudulent Conveyances

12. ADVANTAGES AND
DISADVANTAGES
Advantages
 Can begin to transfer
ownership without control
 Can transfer assets likely to
appreciate and minimize
estate tax
 Can get discounts to
minimize gift tax
Disadvantages
 IRS reporting obligations
 Costs –Attorney‟s
fees, appraisals, upkeep
 Complexity
 Ownership transfer is
irrevocable

13. Irrevocable and Revocable
TRUST STRUCTURES

14.  Qualified Personal Residence Trust
(QPRT)
 More tax planning than asset protection
 Intentionally Defective Grantor Trust
(IDIT) & Grantor Retained Annuity
Trust (GRAT)
 Low Asset Value / Lower Interest Rates
 Caveat: “Zeroed Out” GRATs
 Irrevocable Life Insurance Trust (ILIT)
 Protects Death Benefit from Creditors
IRREVOCABLE TRUSTS
 Lifetime Credit Shelter Trust (LCST)

15. children for their LIFETIMES in order to
provide enhanced protection
 The trust should include spendthrift
provisions
 Decedent‟s half (B-C) Irrevocable at 1st
Death & protected
 Most living trusts distributed assets to
heirs upon the heir attaining certain
ages (e.g. half at age 30, remaining half
at age 40)
LIVING TRUSTS
 Create trusts for surviving spouse and

16. protecting heirs from potential divorcing
spouses or judgment creditors
 It is also inefficient for the purpose of
protecting assets from estate taxation for
future generations
 Consider loans to beneficiaries (rather
than outright distributions) when trust
assets applied for further investment or to
purchase an asset with financial value
 We prefer lifetime trusts, which enable
GST exemption
LIVING TRUSTS CONT…
 This is inefficient for the purpose of

17. GRAT
 GRAT makes a gift to
QPRT
 QPRT requires gifting of
children which must be
paid back over a term of
years.
the primary residence
 Methods the grantor can
continue to live in the home
 Recently targeted by
President Obama for
potential reform or
limitations on “zero out”
policy
 Consider multiple GRATs as
QPRTs and GRATs are
a hedge
protected during Initial
Terms
1. set up a rental agreement
with trustee
2. If the trustee is the
not
spouse, she is able to do
with her property whatever
she pleases, including
allowing the grantor to
remain as a tenant
3. Consider dual QPRTs as a
hedge

18. Planning with
LIFE INSURANCE

19. LIFE INSURANCE
 Under state law beneficiary‟s interest in policy is protected against
policy owner‟s creditors
 If the owner of policy insures life of another, owner is protected
from creditors of the insured
 If owner of the policy insures life of spouse for owner‟s own
benefit, owner is protected from own creditors
 Policy owner‟s interest in case surrender value is protected from
claims of owner‟s own creditors

20. Life Insurance
Trusts
• Greatest protection
afforded by owning life
insurance in an Irrevocable
Life Insurance Trust (ILIT)
• ILIT protects value from
creditors of insured and
trust beneficiaries
• ILIT also excludes taxation
in insured‟s estate
• Distributions pass to
children in trust for lifetime

21. ACCESS TO ILIT CASH VALUE
 ILIT may be drafted to provide that discretionary distributions of
trust assets to spouse and/or descendants
 Allows ready access to cash surrender value
 If no spouse, trust may be established in jurisdiction (i.e.
Alaska, Nevada, Delaware) which allows discretionary
distributions to the grantor
 When trust is funded it can be set up in same jurisdiction to avoid
state income tax

22. KEY FEATURES
 Proper trust planning avoids rule against perpetuities – allows for
“dynasty” planning
 Allows for discretionary distributions to trust maker/grantor without
assets being included in taxable estate

23. WILL LOCAL LAW APPLY?
 Home of the trustee is the home of the trust
 In general, law of a jurisdiction where administration takes place
controls. For example, if a Delaware institution is trustee then the
trust falls under Delaware law.
 Trust should include specific intent that the trust be subject to law
of the asset protected jurisdiction that will serve as situs for the
trust
 Some assets must be deposited in that state/tax jurisdiction
 At least one trustee must be based in that state/jurisdiction

24. REQUIREMENTS FOR CREDITOR
PROTECTION
 Transfer into trust cannot be
 Trust maker/grantor cannot
a fraudulent conveyance**
 Transfer cannot render the
trust maker/grantor insolvent
 Transfer cannot be intended
to remove assets from the
reach of a specifically known
or anticipated creditor
 There are various statutes of
limitations to commence a
suit claiming fraudulent
conveyance including child
support
retain power to revoke the
trust
 Trust maker/grantor cannot
retain entitlement to income
or principal form the trust;
rather trust maker may be
eligible for discretionary
distributions in sole and
absolute discretion of a
trustee other than the trust
maker
**each state is different in its
definition of fraud including time
and amount of transfer

25. POTENTIAL LIMITATIONS
 Full faith credit attacks
 May be shielded by limiting
trustees only to persons or
entities residing in state where
trust created and who do not
have “minimum contact” in trust
maker‟s domicile state
 Supremacy clause
arguments
 May apply in bankruptcy
context; however, bankruptcy
laws use state laws to
determine interests of trust
makers and beneficiaries
 Conflict of laws
 Claim that laws of the trust
maker‟s state of domicile
govern the rights of the trust
maker‟s creditors
 However, the trust may (and
should) specify which state‟s
law governs the instrument
 Restatement of trusts sanctions
choice of law clause in trust
 No existing case law

26. OFFSHORE ASSETS
US Trustee
(You)
Foreign Trust
Company
Asset Protection
trust 99% LP of
FLP ownership
(holds overseas$)
You, Corp, LLC
1% GP of FLP
FLP hold US $
Separates
Ownership (Trust)
Form control (GP)

27. IMPORTANT CONCEPTS
 Trust protector
 Don‟t transfer to foreign trustee without protection
 Asset protection is only one part of the Estate Planning puzzle
 Some simple asset techniques can protect a high percentage of
your assets

28. QUESTIONS?
Thank you!