PLANNING WITH DOMESTIC AND FOREIGN ASSET … 2 - Asset... · – Utah Code Ann. 1953 Utah Code Ann....

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PLANNING WITH PLANNING WITH DOMESTIC AND DOMESTIC AND FOREIGN ASSET FOREIGN ASSET

PR0TECTION TRUSTSPR0TECTION TRUSTS

Robert G. Alexander, JD, LL.M., EPLS, AEPRobert G. Alexander, JD, LL.M., EPLS, AEPCopyright 2009Copyright 2009

Our Two Study GoalsOur Two Study Goals

To Understand the To Understand the DynamicsDynamics of Assets Protection of Assets Protection PlanningPlanning

To Examine To Examine Specific Planning Issues and TechniquesSpecific Planning Issues and TechniquesUsing Domestic and Foreign Situs TrustsUsing Domestic and Foreign Situs Trusts

22© 2009 Alexander & Klemmer, S.C.© 2009 Alexander & Klemmer, S.C.

Index of the Subject MatterIndex of the Subject Matter

Overview of Asset Protection PlanningOverview of Asset Protection Planning

Fraudulent Conveyances, Bankruptcy and Other IssuesFraudulent Conveyances, Bankruptcy and Other Issues

Overview of Domestic TrustsOverview of Domestic Trusts

Domestic Asset Protection TrustsDomestic Asset Protection Trusts

Foreign Asset Protection TrustsForeign Asset Protection Trusts

Ethical and Practical ConsiderationsEthical and Practical Considerations


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AppendicesAppendices

Sample domestic asset protection trust clausesSample domestic asset protection trust clauses

Sample irrevocable trust clausesSample irrevocable trust clauses

Sample solvency letterSample solvency letter

State liability systems rankingsState liability systems rankings

State third party spendthrift statutesState third party spendthrift statutes

State selfState self--settled spendthrift statutessettled spendthrift statutes


Appendices Appendices -- Cont.Cont.

Uniform Trust Code statutesUniform Trust Code statutes

State income tax provisions for nonState income tax provisions for non--grantor trustsgrantor trusts

Rev. Rul. 2004Rev. Rul. 2004--6464

A comparison of six (6) DAPT statutesA comparison of six (6) DAPT statutes

Synopsis of State asset protection and exemption Synopsis of State asset protection and exemption planningplanning


Appendices Appendices -- Cont.Cont.

Delaware ActDelaware Act

Alaska ActAlaska Act

Nevada ActNevada Act

South Dakota ActSouth Dakota Act

Synopsis of Cook Island LawSynopsis of Cook Island Law

Synopsis of Cayman Island LawSynopsis of Cayman Island Law

Planning flow chartsPlanning flow charts


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PART ONEPART ONE

OVERVIEW OF ASSET PROTECTION PLANNINGOVERVIEW OF ASSET PROTECTION PLANNING

Increasingly sophisticated financial, business, tax and Increasingly sophisticated financial, business, tax and litigation environmentlitigation environment

Asset protection planning historically is a part of Asset protection planning historically is a part of comprehensive, integrated wealth planningcomprehensive, integrated wealth planning


Overview Overview -- Cont.Cont.

Asset protection Asset protection –– two general topicstwo general topics

–– InsuringInsuring against lossagainst loss

–– PlanningPlanning to place assets our of the reach of creditorsto place assets our of the reach of creditors

Exemption planningExemption planning

Business entitiesBusiness entities

TrustsTrusts

–– DomesticDomestic

–– Foreign Foreign


Overview Overview -- Cont.Cont.

Current litigation environment creates greater exposure Current litigation environment creates greater exposure to lossto loss

–– Expanding and new theories of liabilityExpanding and new theories of liability

–– Higher damage awards Higher damage awards –– “deep pockets”“deep pockets”

–– Government causes of actionGovernment causes of action

–– New statutes and regulationsNew statutes and regulations

–– High cost of litigationHigh cost of litigation

–– Loss of business, reputation, credit, etc.Loss of business, reputation, credit, etc.


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Traditional Asset Protection StrategiesTraditional Asset Protection Strategies

Transfers to a spouseTransfers to a spouse

Joint ownershipJoint ownership

Entities by the entiretiesEntities by the entireties

Business entitiesBusiness entities

Traditional estate planning entitiesTraditional estate planning entities

–– ILITILIT

–– GRATGRAT

–– IDITIDIT

–– Dynasty trustsDynasty trusts


Traditional Asset Protection StrategiesTraditional Asset Protection Strategies-- Cont. Cont. --

Exemption and preExemption and pre--bankruptcy planningbankruptcy planning

Domestic asset protection trusts Domestic asset protection trusts –– DAPTsDAPTs

Foreign asset protection trusts Foreign asset protection trusts -- FAPTsFAPTs


TradiTraditional Forms of Asset Protectiontional Forms of Asset ProtectionHave Become InadequateHave Become Inadequate

InsuranceInsurance

–– ExclusionsExclusions

–– Policy limitsPolicy limits

–– Solvency of the insurerSolvency of the insurer

–– Premium costsPremium costs

–– Multiple policy issuesMultiple policy issues

–– Multiple party issuesMultiple party issues


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Traditional Forms of Asset ProtectionTraditional Forms of Asset Protection-- Cont. Cont. --

Business EntitiesBusiness Entities

–– Piercing the entity veilPiercing the entity veil

–– Owner liabilityOwner liability

–– Manager liabilityManager liability

–– Fines and penaltiesFines and penalties


PART TWOPART TWO

Fraudulent Conveyance IssuesFraudulent Conveyance Issues

Bankruptcy Issues Bankruptcy Issues

Other Statutory and Legal IssuesOther Statutory and Legal Issues


Fraudulent Conveyance IssuesFraudulent Conveyance Issues

Statues to set aside fraudulent transfersStatues to set aside fraudulent transfers

Three categories of creditorsThree categories of creditors

–– Present creditorsPresent creditors

–– Subsequent creditorsSubsequent creditors

–– Potential future creditorsPotential future creditors

Uniform Fraudulent Transfer Act Uniform Fraudulent Transfer Act –– UFTAUFTA

–– Utah has adopted the UFTA. Utah has adopted the UFTA.

–– Utah Code Ann. 1953 Utah Code Ann. 1953 §§§§ 2525--66--1 1 et seqet seq..


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Four Possible Classes ofFour Possible Classes ofUFTA ViolationsUFTA Violations

Present actual fraudPresent actual fraud –– claim or debt occurs before the claim or debt occurs before the transfertransfer

–– Just pay the debtJust pay the debt

Present constructive fraudPresent constructive fraud –– present, foreseeable link present, foreseeable link between the transfer and the lossbetween the transfer and the loss

–– Just plan aheadJust plan ahead

–– Stay solventStay solvent

Future constructive fraudFuture constructive fraud –– no present notice or no present notice or knowledgeknowledge

–– Same planningSame planning

Future actual fraudFuture actual fraud –– very hard to provevery hard to prove


UFTA “QUICK” ANALYSISUFTA “QUICK” ANALYSIS

Actual FraudActual Fraud

–– Intent onlyIntent only

–– Solvency is irrelevantSolvency is irrelevant

–– SOL SOL –– 4 years/1 year4 years/1 year

Constructive FraudConstructive Fraud

–– Transfer Transfer beforebefore the claim arisesthe claim arises

InsolvencyInsolvency

4 year SOL4 year SOL


UFTA “QUICK” ANALYSISUFTA “QUICK” ANALYSIS-- Cont. Cont. --

Constructive FraudConstructive Fraud

–– Claim arises Claim arises afterafter the transferthe transfer

Lack of adequate consideration, andLack of adequate consideration, and

InsolvencyInsolvency

Foreseeable claimForeseeable claim

Causal connectionCausal connection

4 year SOL4 year SOL


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Remedy for Fraudulent TransfersRemedy for Fraudulent Transfers

Transfer is set asideTransfer is set aside

Assets are recovered by the creditorAssets are recovered by the creditor

Identity of the original transferee is essentially irrelevantIdentity of the original transferee is essentially irrelevant

Statute of Limitations Statute of Limitations –– UFTAUFTA

–– Four yearsFour years after the transfer was madeafter the transfer was made

–– One yearOne year after the transfer could reasonably have after the transfer could reasonably have been discovered by the claimant.been discovered by the claimant.


Choice of Applicable LawChoice of Applicable Law

Courts should apply the Fraudulent Transfer law of the Courts should apply the Fraudulent Transfer law of the statute governing the Asset Protection Truststatute governing the Asset Protection Trust

The Real Issue: is the The Real Issue: is the creationcreation of the trust a fraudulent of the trust a fraudulent transfer?transfer?

–– If so, it can be set asideIf so, it can be set aside

–– Even if the trust otherwise is valid in the state of Even if the trust otherwise is valid in the state of creation.creation.

Is the transfer itself a fraudulent conveyance?Is the transfer itself a fraudulent conveyance?


Bankruptcy IssuesBankruptcy Issues

Old LawOld Law

–– Set aside a transfer if made within one (1) year of Set aside a transfer if made within one (1) year of filing a petitionfiling a petition

The Bankruptcy Abuse Prevention and Consumer The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Protection Act of 2005 –– BAPCPABAPCPA

–– Set aside a transfer if made within Set aside a transfer if made within two (2)two (2) yearsyears of of filing a petitionfiling a petition

–– Set aside a transfer to a Set aside a transfer to a selfself--settled trustsettled trust if made if made within within ten (10) yearsten (10) years


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Other Statutory and Legal IssuesOther Statutory and Legal Issues

Many categories of Many categories of statutorystatutory violations and remediesviolations and remedies

–– RICORICO

–– IRSIRS

–– Money LaunderingMoney Laundering

–– Patriot ActPatriot Act

Many categories of Many categories of civilcivil remediesremedies

–– Constructive trust, etc.Constructive trust, etc.


PART THREEPART THREE

AN AN OVERVIEWOVERVIEW OF DOMESTIC TRUSTSOF DOMESTIC TRUSTS

–– DEFINITIONSDEFINITIONS

APT APT –– asset protection trustasset protection trust

DAPT DAPT –– domestic asset protection trustdomestic asset protection trust

FAPT FAPT –– foreign asset protection trustforeign asset protection trust

Grantor Grantor –– tax termtax term

Settlor Settlor -- person who establishes a trustperson who establishes a trust

UTC UTC –– Uniform Trust CodeUniform Trust Code


Drafting Trusts For Asset ProtectionDrafting Trusts For Asset Protection

Spendthrift ClausesSpendthrift Clauses -- generally recognizedgenerally recognized

–– Except for selfExcept for self--settled trustssettled trusts

–– Restatement Second of Trusts Restatement Second of Trusts –– “RST”“RST”

Asset protection for beneficiaries of domestic trusts Asset protection for beneficiaries of domestic trusts depends on depends on three factorsthree factors::

–– Settlor’s retention of control over the trustSettlor’s retention of control over the trust

–– Powers of appointment available to the beneficiariesPowers of appointment available to the beneficiaries

–– Withdrawal/invasion rights available to beneficiariesWithdrawal/invasion rights available to beneficiaries


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Summary of Trust CharacteristicsSummary of Trust Characteristics

Types of common estate planning trustsTypes of common estate planning trusts

–– All have asset protection features to some extentAll have asset protection features to some extent

Generally, creditors Generally, creditors onlyonly can reach trust assets and can reach trust assets and income to the income to the maximum extentmaximum extent that the trustee can that the trustee can distribute the assets/income to the Settlor or beneficiarydistribute the assets/income to the Settlor or beneficiary

–– Review the distribution requirementsReview the distribution requirements

–– Review applicable state lawReview applicable state law

–– Review fraudulent transfer issuesReview fraudulent transfer issues


The The KeyKey Factor Factor –– Distribution StandardsDistribution Standards

IncomeIncome

PrincipalPrincipal

State law considerationsState law considerations

What are the document’s distribution standardsWhat are the document’s distribution standards

The Uniform Trust CodeThe Uniform Trust Code

–– Restatement of Trusts 3rdRestatement of Trusts 3rd


The The ThreeThree Basic Types ofBasic Types ofDistribution StandardsDistribution Standards

DiscretionaryDiscretionary

–– Absolution discretionAbsolution discretion

–– Discretionary with standardsDiscretionary with standards

Support trustSupport trust

–– What are the standardsWhat are the standards

MandatoryMandatory

–– What are the standardsWhat are the standards


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Drafting For Maximum ProtectionDrafting For Maximum ProtectionFor BeneficiariesFor Beneficiaries

Independent trusteesIndependent trustees

Rights to receive income and principal are determined in Rights to receive income and principal are determined in the trustee’s sole discretionthe trustee’s sole discretion

Trustee is given power to make payments on behalf of Trustee is given power to make payments on behalf of beneficiaries rather than directly to thembeneficiaries rather than directly to them

Trustee is authorized to acquire assets for the use of the Trustee is authorized to acquire assets for the use of the beneficiariesbeneficiaries


Drafting For Maximum ProtectionDrafting For Maximum Protection-- Cont. Cont. --

Trustee is given power to hold back distributions if they Trustee is given power to hold back distributions if they are not in a beneficiary’s best interestare not in a beneficiary’s best interest

Beneficiaries are only given limited powers of Beneficiaries are only given limited powers of appointmentappointment

Trustee is given power to “sprinkle” distributions among Trustee is given power to “sprinkle” distributions among multiple beneficiariesmultiple beneficiaries

Trust includes a spendthrift provisionTrust includes a spendthrift provision


Drafting For Maximum ProtectionDrafting For Maximum Protection-- Cont. Cont. --

The trust is sitused in a state that recognizes and The trust is sitused in a state that recognizes and enforces spendthrift provisionsenforces spendthrift provisions

Assets that may create liability exposure are isolated in:Assets that may create liability exposure are isolated in:

–– Business entitiesBusiness entities

–– Separate trustsSeparate trusts


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Generally Recognized Generally Recognized ExceptionsExceptionsto Spendthrift Protectionto Spendthrift Protection

Internal Revenue ServiceInternal Revenue Service

Existing tort creditorsExisting tort creditors

Child supportChild support

Spouse supportSpouse support

Reciprocal trustsReciprocal trusts

SelfSelf--settled trustssettled trusts

Review specific state statutes carefullyReview specific state statutes carefully


Summary of Trust CharacteristicsSummary of Trust Characteristics

Types of common estate planning trustsTypes of common estate planning trusts

–– All have asset protection features to some extentAll have asset protection features to some extent

Generally, creditors can only reach the trust assets and Generally, creditors can only reach the trust assets and income to the maximum extent that the trustee can income to the maximum extent that the trustee can distribute the assets/income to the Settlor or beneficiarydistribute the assets/income to the Settlor or beneficiary

–– Review the distribution requirementsReview the distribution requirements

–– Review applicable state lawReview applicable state law

–– Review fraudulent transfer issuesReview fraudulent transfer issues


Asset Protection TrustsAsset Protection Trusts-- APTs APTs --

States that have no States that have no Rule Against PerpetuitiesRule Against Perpetuities–– Now over twenty (20) states and countingNow over twenty (20) states and counting

States with no States with no state income taxstate income tax –– such assuch as–– AlaskaAlaska–– ArizonaArizona–– DelawareDelaware–– FloridaFlorida–– NevadaNevada–– South DakotaSouth Dakota–– Wyoming Wyoming


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Asset Protection Trusts Asset Protection Trusts –– Cont.Cont.

Foreign jurisdictions Foreign jurisdictions –– offshore trustsoffshore trusts

States that have States that have expanded asset protectionexpanded asset protection features of features of domestic trustsdomestic trusts

–– Delaware Delaware

–– Alaska Alaska

–– Nevada Nevada

–– South DakotaSouth Dakota

–– TennesseeTennessee

–– UtahUtah

–– OthersOthers


Advanced Planning ConsiderationsAdvanced Planning Considerations

Retain controlRetain control

–– Transfer assets to a FLP/FLLCTransfer assets to a FLP/FLLC

–– Transfer entity interests to the APTTransfer entity interests to the APT

Creditors remedies limited to a charging orderCreditors remedies limited to a charging order

–– Specific state statutesSpecific state statutes

Create the entity in a state that maximizes the entity Create the entity in a state that maximizes the entity asset protection featuresasset protection features

–– Also helps establish contact in that stateAlso helps establish contact in that state


PART FOURPART FOUR

DOMESTIC ASSET PROTECTION TRUSTS DOMESTIC ASSET PROTECTION TRUSTS –– DAPTsDAPTs

Most states Most states do notdo not extent protection of spendthrift trust extent protection of spendthrift trust laws to laws to selfself--settledsettled truststrusts

–– Trusts where Settlor retains too much control or Trusts where Settlor retains too much control or benefitsbenefits

–– Uniform Trust CodeUniform Trust Code

–– Third Restatement of TrustsThird Restatement of Trusts


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Ten States Have Extended SpendthriftTen States Have Extended SpendthriftProtection to Protection to SelfSelf--SettledSettled TrustsTrusts

AlaskaAlaska

DelawareDelaware

Missouri Missouri

Nevada Nevada

OklahomaOklahoma


SelfSelf--Settled Spendthrift TrustsSettled Spendthrift Trusts--ContinuedContinued--

Rhode IslandRhode Island

South DakotaSouth Dakota

UtahUtah

TennesseeTennessee

WyomingWyoming

The extent of asset protection The extent of asset protection varies dramaticallyvaries dramatically from from state to statestate to state


Key Tax ConsiderationsKey Tax Considerations

Is the trust a Grantor trust Is the trust a Grantor trust –– IRC Secs. 671IRC Secs. 671--679679

–– Trust income taxed to SettlorTrust income taxed to Settlor

Are transfers to the trust completed gifts for gift tax Are transfers to the trust completed gifts for gift tax purposespurposes

Does the trust allow the trustee to reimburse the Settlor Does the trust allow the trustee to reimburse the Settlor for income taxes attributable to the trustfor income taxes attributable to the trust


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Key Tax ConsiderationsKey Tax Considerations-- Cont. Cont. --

DAPTs can be used to avoid state and local income DAPTs can be used to avoid state and local income taxestaxes

Structure the trust so that transfers to the trust are Structure the trust so that transfers to the trust are completed giftscompleted gifts for gift tax purposes and for gift tax purposes and excludedexcluded from from the Settlor’s gross estatethe Settlor’s gross estate

–– Even though Settlor retains powersEven though Settlor retains powers

–– Even though Settlor retains discretionary rights to Even though Settlor retains discretionary rights to receive distributionsreceive distributions


Key Tax ConsiderationsKey Tax Considerations-- Cont. Cont. --

Gift Taxes Gift Taxes –– incomplete giftincomplete gift

–– Settlor retains a LPOA over the DAPTSettlor retains a LPOA over the DAPT

–– Settlor retains the power to veto distributionsSettlor retains the power to veto distributions

Estate Taxes Estate Taxes –– IRC Sec. 2036 and 2038IRC Sec. 2036 and 2038

–– Too much Settlor control Too much Settlor control

–– Too much Settlor retained rightsToo much Settlor retained rights

–– Can Settlor’s Can Settlor’s creditorscreditors enforce rights because of enforce rights because of Settlor’s retained control or rights?Settlor’s retained control or rights?


Protecting Against Challenges to DAPTsProtecting Against Challenges to DAPTs

Constitutional issuesConstitutional issues

–– Full faith and credit clauseFull faith and credit clause

–– Due process clauseDue process clause

–– Supremacy clauseSupremacy clause

When are Constitutional issues importantWhen are Constitutional issues important

–– Actions and judgments in a nonActions and judgments in a non--DAPT state and DAPT state and enforcement in a DAPT stateenforcement in a DAPT state

–– Judgment against a DAPT or DAPT trustee in a nonJudgment against a DAPT or DAPT trustee in a non--DAPT courtDAPT court


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Domestic vs. Offshore APTsDomestic vs. Offshore APTs

Important legal distinctionsImportant legal distinctions

More substantial legal barriers to creditors with FAPTsMore substantial legal barriers to creditors with FAPTs

Selected foreign jurisdictions will not honor judgments Selected foreign jurisdictions will not honor judgments rendered in the U.S.rendered in the U.S.

Creditors may have to reCreditors may have to re--litigate in the foreign jurisdictionlitigate in the foreign jurisdiction

Shorter statute of limitations in foreign jurisdictionsShorter statute of limitations in foreign jurisdictions

Much stricter standards of proof for fraudulent transfersMuch stricter standards of proof for fraudulent transfers

–– Beyond a reasonable doubtBeyond a reasonable doubt

“Duress” clauses to protect trustees “Duress” clauses to protect trustees


Domestic vs. Foreign APTsDomestic vs. Foreign APTs-- Cont. Cont. --

Difficult for U.S. creditors to engage local counselDifficult for U.S. creditors to engage local counsel

U.S. courts have no jurisdiction over the trust or the U.S. courts have no jurisdiction over the trust or the trusteetrustee

But But ––

–– U.S. Constitutional issues may interveneU.S. Constitutional issues may intervene

–– Risks of U.S. fines and/or imprisonmentRisks of U.S. fines and/or imprisonment

–– Planner’s risk professional disciplinePlanner’s risk professional discipline


Factors in Favor of DAPTsFactors in Favor of DAPTs

U.S. grantor trust tax rulesU.S. grantor trust tax rules

Discretionary “flee” clauses to move trusts offshoreDiscretionary “flee” clauses to move trusts offshore

Economic stabilityEconomic stability

Political stabilityPolitical stability

U.S. courts are not offended by what is perceived to be U.S. courts are not offended by what is perceived to be illegitimate planningillegitimate planning

Costs of creations and administrationCosts of creations and administration

Convenience Convenience


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THE BENEFICIARY THE BENEFICIARY DEFECTIVEDEFECTIVE

INHERITOR’S TRUSTINHERITOR’S TRUST

Finessing the “Pipe Dream”Finessing the “Pipe Dream”

The Ultimate TrustThe Ultimate TrustA Beneficiary Defective Inheritor’s TrustA Beneficiary Defective Inheritor’s Trust

Combining:Combining:

–– A thirdA third--party settled trust withparty settled trust with

–– Grantor trust income tax status for the beneficiaryGrantor trust income tax status for the beneficiary

Finessing the “pipe dream”Finessing the “pipe dream”


So What Is A BDIT?So What Is A BDIT?

A dynasty trust set up for A dynasty trust set up for mymy descendants which avoids descendants which avoids theirtheir

–– Transfer taxes Transfer taxes

–– Creditors, including divorcing spousesCreditors, including divorcing spouses

A beneficiary “controlled” trustA beneficiary “controlled” trust

Allows gifts and sales to a trust that is income tax Allows gifts and sales to a trust that is income tax defective as to the beneficiarydefective as to the beneficiary

–– Crummey power of withdrawal Crummey power of withdrawal –– §§ 678678

Wealth transfer leveraging with discounted entitiesWealth transfer leveraging with discounted entities


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So What is a BDIT So What is a BDIT -- Cont.Cont.

Combines the planning opportunities of:Combines the planning opportunities of:

–– Chapter 13 Chapter 13 –– GSTT rulesGSTT rules

–– IRC IRC §§ 678 678 –– beneficiary income tax statusbeneficiary income tax status

–– Rev. Rul. 85Rev. Rul. 85--13 13 –– nonnon--recognition of sales to recognition of sales to IDITsIDITs

–– Rev. Rul. 93Rev. Rul. 93--12 12 –– no family attribution rules for no family attribution rules for purposes of discountingpurposes of discounting

–– Rev. Rul. 2004Rev. Rul. 2004--64 64 –– no additional gift on no additional gift on payment of income tax payment of income tax


BDIT DesignBDIT Design

Established and initially funded by a third partyEstablished and initially funded by a third party

Fully discretionary distribution standardsFully discretionary distribution standards

Controlled trusteeshipControlled trusteeship

–– Family trusteeFamily trustee

–– Independent trusteeIndependent trustee

The “use” conceptThe “use” concept

Broad SPA Broad SPA –– a “rea “re--write” powerwrite” power

PerpetualPerpetual

Beneficiary has the functional equivalence of outright Beneficiary has the functional equivalence of outright ownership of the trust assetsownership of the trust assets


BDIT Tax ResultsBDIT Tax Results

Estate freezeEstate freeze

–– Installment notes in the estateInstallment notes in the estate

–– PostPost--transfer appreciation shiftedtransfer appreciation shifted

Estate squeezeEstate squeeze

–– Discounted assets removed from the transfer tax Discounted assets removed from the transfer tax systemsystem

Income “tax burn” Income “tax burn” –– the beneficiary pays the tax on the the beneficiary pays the tax on the income generate by the trustincome generate by the trust

Section 678Section 678

Crummey power of withdrawalCrummey power of withdrawal


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BDIT NonBDIT Non--tax Resultstax Results

The client/beneficiary is in control of the BDITThe client/beneficiary is in control of the BDIT

Assets are creditor protected for the client/beneficiary Assets are creditor protected for the client/beneficiary

and his/her familyand his/her family

Assets are available after the “tax burn”Assets are available after the “tax burn”

Client/beneficiary has a “reClient/beneficiary has a “re--write” power with a SPAwrite” power with a SPA

–– Protects against potential family conflictsProtects against potential family conflicts

–– Protects against inadvertent gifts to the trustProtects against inadvertent gifts to the trust


BDIT NonBDIT Non--tax Results tax Results -- Cont.Cont.

Opportunity shiftingOpportunity shifting

–– Business and investment opportunitiesBusiness and investment opportunities

–– Giving free advice or managing trust assetsGiving free advice or managing trust assets

Quintessential Quintessential life insurance trustlife insurance trust

–– Life insurance on a beneficiary who is also a trusteeLife insurance on a beneficiary who is also a trustee

–– Decision must be made by an independent trusteeDecision must be made by an independent trustee

–– Beneficiary cannot have a SPA over life insuranceBeneficiary cannot have a SPA over life insurance

© 2009 Alexander & Klemmer, S.C.© 2009 Alexander & Klemmer, S.C. 5353

Seeding the TrustsSeeding the Trusts

Gifts to Trust Gifts to Trust

$5,000

FBOClient

and Katie

FBOClient

and Bob

FBO Client

and Sue

Trust A Trust B Trust C

$5,000 $5,000

Client – Power of Withdrawal$15,000 5454© 2009 Alexander & Klemmer, S.C.© 2009 Alexander & Klemmer, S.C.

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Transfer TaxTransfer Tax

Creditor rightsCreditor rights

Owner for Income Tax Owner for Income Tax Purposes Purposes -- IRC IRC §§ 678(a)678(a)

Caveat: Client has a Power of Withdrawal over all gifts to BDITCaveat: Client never makes a gratuitous transfer to BDIT

Who is the Grantor?

TaxTax--Free Sale to BDITFree Sale to BDIT

AssetsAssets

Installment NotesInstallment Notes

WealthyWealthy client sells discountable income client sells discountable income producing assets for an Installment Note producing assets for an Installment Note

Trust A Trust B Trust C

BDITsBDITs

Contact InformationContact Information

Robert G. Alexander, EsqRobert G. Alexander, Esq

Alexander & Klemmer, S.C.Alexander & Klemmer, S.C.

933 N. Mayfair Road, Suite 301933 N. Mayfair Road, Suite 301

Milwaukee, Wisconsin 53226Milwaukee, Wisconsin 53226

Tel: 414Tel: 414--476476--50205020

EE--mail: bob@alexandermail: [email protected]

© 2009 Alexander & Klemmer, S.C.© 2009 Alexander & Klemmer, S.C. 5757

PLANNING WITH DOMESTIC AND FOREIGN ASSET … 2 - Asset... · – Utah Code Ann. 1953 Utah Code Ann....

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Transcript of PLANNING WITH DOMESTIC AND FOREIGN ASSET … 2 - Asset... · – Utah Code Ann. 1953 Utah Code Ann....