How Parents Keep Control Both During Their Lifetimes And After They Are Dead

May 1, 2014

How Parents Keep ControlBoth During Their

LifetimesAnd After They Are

Dead

Givner & Kaye, A Professional [email protected] 1

How Parents Keep ControlTable of Contents


1. Introduction: The Problem. p. 52. Why Do Clients Dislike Irrevocable Trusts? p. 63. What Happens As A Result Of No Flexibility? p. 74. The Formula. p. 85. What Clients Will Do If They Feel Comfortable. p. 96. Jump Right In: The Completed Gift Asset Protection Trust. p. 10

6.1. Direction Of The Lifetime Exclusion. p. 116.2. Rule Against Self-Settled Spendthrift Trusts. p. 136.3. Cook Islands SSST Rule. p. 146.4. Nevada SSST Rule. p. 156.5. Diagram 1. p. 166.6. Diagram 7. p. 226.7. Diagram 8 p. 23

7. List of Techniques. p. 248. A Summary. p. 27

8.1. How Can Grantor Retain Powers Directly? p. 288.2. How Can Grantor Retain Powers Jointly? p. 298.3. How Can Grantor Retain Powers Through A Trustee? p. 308.4. How Can Grantor Retain Powers Through A Protector? p. 328.5. How Can Grantor Retain Powers Through Others? p. 33

9. Another Way Of Classifying Ways To Retain Control. p. 349.1. Change The Control Person. p. 359.2. Change The Donees/Beneficiaries. p. 369.3. Change How And When They Get Their Gift/Inheritance. p. 37

How Parents Keep ControlTable of Contents [continued]


10. Danger Of Too Much Control. p. 3910.1. In re Yerushalmi. p. 4010.2. In re Schwarzkopf. p. 41

11. Technique 1: Rev. Rul. 95-58. p. 4311.1. Sample Trust Language. p. 4411.2. IRC Section 672(c). p. 5311.3. Diagram. p. 54

12. Technique 2: State Law. p. 5512.1. California Probate Code. p. 5612.2. Maine Probate Code. p. 6212.3. Other States. p. 64

13. Technique 3: Protectors. p. 6513.1. What Is A Trust Protector? p. 6613.2. Nevada Statutes. p. 67

14. Technique 4: Single Member LLCs. p. 7214.1. Three Types Of Liability. p. 7414.2. Diagrams. p. 8114.3. Variation 1: SMLLC with SSST. p. 85

14.3.1. Vanilla Structure. p. 8614.3.2. APT Structure. p. 8814.3.3. Why In California We Use Nevada Law. p. 89

14.4. Variation 2: The Very Best Structure. p. 9114.5. Variation 3: Partnership (Or LLC) To Own An Insurance Policy. p. 93

How Parents Keep ControlTable of Contents [continued]


15. Technique 5: Private Trust Company. p. 9515.1. Letter To Nevada Financial Institutions Division. p. 9615.2. Approval Letter From F.I.D. p. 9715.3. California. p. 9815.4. Diagram. p. 102

16. Technique 6: Grantor Trust Flip Switch. p. 10416.1. Non-Equation. p. 10516.2 Powers Used To Achieve Grantor Trust Status. p. 10816.3. IRC Section 675(4)(C): Reacquire Trust Corpus. p. 11016.4. IRC Section 677(a)(3): Use Trust Income To Buy

Insurance On Grantor’s Life. p. 11216.5. The Switch. p. 113

17. Technique 7: Powers Of Appointment. p. 11517.1. IRC Section 2041. p. 11617.2. Sample Trust Language. p. 117

18. Technique 8: Trustee’s Decanting Powers. p. 11819. Technique 15: The Bar Mitzvah DVD. p. 12120. Sample Irrevocable Trust Maintenance Program. p. 12521. Final Advice On How To Control Children: A Good Whipping. p. 12622. Questions And Answers. p. 128

How Parents Keep Control: The Problem

Parents are used to being in dictatorial control while they arealive. On the other hand, trusts must be irrevocable for estate tax andasset protection purposes. So people often get turned off the moment theword "irrevocable“ comes up.

And, even when people move forward with an irrevocable trust,they often regret it later when they realize it can't be changed! And if theclient can't change a trust later the advisor may regret it too, especiallywhen the trust may later need to be adapted to new estate tax laws. We’llsee how flexibility can be built into irrevocable trust.

Also, some parents do not like to contemplate what will happenwith their wealth after they are gone. Will their children and later issuedissipate the wealth unwisely? We’ll see how the parents can retaincontrol even from the grave if they wish.


How Parents Keep ControlWhy Do Clients Dislike Irrevocable Trusts?Why do I want to transfer (give away) assets to a trust (which does not

benefit me) where I can’t (in the future) change my mind?

What if I decide in 10 years that I don’t like the Trustee? What if theTrustee stops doing what I tell him (or her) to do?

What if I no longer like my kids and I want to leave the assets to mygrandchildren? Or to charity? Or what if I want to cut out one of my children andleave it to the other two?

What if I want to change the manner of distribution? Instead of outrighton the death of the survivor of the two of us, I want the kids to get income onlyuntil they are 50, and then 1/3rd of the principal at 50, 60 and 70?

What if I now want to make provision for the children of my secondmarriage? And for my second wife? And for my favorite charity?


How Parents Keep Control

What Happens As A Result Of No Flexibility?

(i) The client may decide “to he## with planning, I’d rather keep control.”

(ii) The client may decide to postpone planning until he can feelcomfortable with the people and the decision.

(iii) The client may decide to set up the structures and then subvert themby, when later dissatisfied, having the cooperative trustee transferring themoney back to the client/grantor/donor.

(Exposing the trustee to the wrath of the beneficiaries when the IRS or a creditorsucceeds in striking down the tax or creditor protection benefits.)



All Tax And Asset Protection Planning Involves This Formula:

“own” control

“own” is a technical term, strictly defined.

“Control” is a common English word which the clientsunderstand.


9

If you are successful in ameliorating your clients’ fears,then they will be more comfortable proceeding with theimportant planning that they need, including:

1. irrevocable insurance trusts;2. grantor retained annuity trusts;3. qualified personal residence trusts;4. domestic asset protection trusts;5. foreign asset protection trusts;6. charitable lead and annuity trusts;7. charitable remainder unitrusts and annuity trusts;8. self-cancelling installment notes;9. private annuities;

10. SCIN-GRATs;11. private foundations and public charities;12. family limited partnerships and FLLCs;13. etc.



10

Completed Gift Asset Protection

Trust




$5,340,000 Lifetime Exclusion per person.

At a 2.5% COLA:

2015 $5,470,000?

2016 $5,610,000?

2017 $5,750,000?

2018 $5,895,000?

2019 $6,042,000?

Completed Gift Asset Protection Trust


No Man’s Fortune Is SafeAs Long As Congress Is In Session





California’s Rule against Self-Settled Spendthrift Trusts is inProbate Code §15302(a):

“If the settlor is a beneficiary of a trust created by the settlor and thesettlor's interest is subject to a provision restraining the voluntary orinvoluntary transfer of the settlor's interest, the restraint is invalid againsttransferees or creditors of the settlor. The invalidity of the restraint ontransfer does not affect the validity of the trust.”

See §112.035 of the Texas Property Code: “if the settlor is also abeneficiary of the trust, a provision restraining the voluntary or involuntarytransfer of his beneficial interest does not prevent his creditors fromsatisfying claims from his interest in the trust estate.”




Typical offshore law permitting self-settled spendthrift trusts is13F(1) of the Cook Islands International Trusts Act provides as follows:

“For the purposes of this Act, and notwithstanding any rule of lawor equity to the contrary, it shall be lawful for an instrument or disposition toprovide that any estate or interest in any property given or to be given to anybeneficiary shall not during the life of that beneficiary, or such lesser periodas may be specified in the instrument or disposition, be alienated or pass bybankruptcy, insolvency or liquidation or be liable to be seized, sold,attached, or taken in execution by process of law and where so providedsuch provision shall take effect accordingly.” See also §13C, entitled“Retention of control and benefits by settlor.”




The general tone of Nevada’s protection for spendthrift trusts isevident in N.R.S. §166.120(2):

“Payments by the trustee to the beneficiary shall be made only toand into the proper hands of the beneficiary and not by way of accelerationor anticipation, nor to any assignee of the beneficiary, nor to or upon anyorder, written or oral, given by the beneficiary, whether such assignment ororder be the voluntary contractual act of the beneficiary or be madepursuant to or by virtue of any legal process in judgment, execution,attachment, garnishment, bankruptcy or otherwise, or whether it be inconnection with any contract, tort or duty.”

However, there is a great deal of other such supportive language.





Diagram 1 “As Is”

Harold and Wanda

$20,000,000 Estate



Completed Gift Asset Protection TrustDiagram 2

Harold and Wanda

Self-Settled Spendthrift Trust (in the state in which the

trustee is located)

Establish The Domestic Asset Protection Trust

Trust Company(NV or AL)

(i) heirs of H and W(ii) charities

discretion to:(iii) Harold and Wanda

Grantors(Settlors)(Trustors)

Co-Trustee #1

BeneficiariesTrusted Best

FriendCo-Trustee #2




Harold and Wanda

Self-Settled Spendthrift Trust (in state in which trustee is located)

Fund The Domestic Asset Protection Trust

Trust Company& Best Friend

(i) heirs of H and W(ii) charities

discretion:(iii) Harold and Wanda

Grantors(Settlors)(Trustors)

Co-Trustees

Beneficiaries$8,000,000(they used their previous $1,000,000 exclusions - now they file new 709s)




SSST

Establish The Single Member LLC

Trust Company& Best FriendCo-

Trustees

$8,000,000

Single Member LLC (in state in which trust is located)



Completed Gift Asset Protection TrustDiagram 5 Option - Establish A Private Trust Company

Trust Company(Nevada or Alaska)

Harold and Wanda

Nevada Heirs’ Trust

Step 1:Grantors(Settlors)(Trustors)

Step 2:Sole

Shareholder



Diagram 6 Establish The PTC’d SSST

Trust Company(Nevada Unregulated)

Harold and Wanda

Nevada Heirs’ Trust

Grantors

Self-Settled Spendthrift Trust

(in state in which trustee is located)

Trustee

(i) heirs of H & W(ii) charities(iii) H & W Beneficiaries





Diagram 7 Establish The LLC For The PTC’d SSSTTrust Company

(Nevada Unregulated)


(in the state in which the trustee is located)

Trustee

(i) heirs of H & W(ii) charities(iii) H & W

Beneficiaries

Single (?) Member LLC(in same state in which trust is located)

(H&W are non-member managers)



Completed Gift Asset Protection Trust - NNG

Diagram 8 If You Want A Nevada Non-Grantor Trust (to avoid California income tax on non-California source income) Trust Company

(Nevada Unregulated)


(in the state in which the trustee is located)

Trustee

Contingentbeneficiaries:(i) heirs of H & W(ii) H & W

Single (?) Member LLC(in same state in which trust is located)

(H&W are non-member managers)



List of Techniques


How Parents Keep Control(i) Rev. Rul. 95-58: grantor changes trustee.

(ii) State Law, e.g., Cal. Prob. Code §§15403 and 15404.

(iii) Protectors (powers limited only by imagination).

(iv) Single Member LLCs.

(v) Private Trust Company.

(vi) Grantor Trust Flip Switch.

(vii) Powers of Appointment.

(viii) Trustee’s “decanting” powers, e.g., to change trust situs.

(ix) Trustee’s power to change trust due to tax laws.



(x) Trustee’s power to terminate trust and distribute as needed.

(xi) Distribution advisor.

(xii) Distribution trustee (to create a “beneficiary controlled” trust).

(xiii) Selling assets from one trust to another (common with ILITs).

(xiv) Independent Board Of Directors.

(xv) The Bar Mitzvah DVD.

(xvi) Charitable Foundation to give post-mortem control.

(xvii) Extended distribution provisions, including incentivedistribution, drug and cult clauses.


How Parents Keep ControlA Summary

1. Grantor can retain power directly.

2. Grantor can retain power jointly.

3. Grantor retain power indirectly through:

3.1. Trustee;

3.2. Protector; or

3.3. Others.

The assignment of a technique to a particular category is ultimately arbitrary, as sometechniques might be appropriate in more than one category, e.g., one technique labeled“directly” might be viewed as “jointly”. But having categories helps us think about them.



How Can The Grantor Retain Powers Directly?

1. Rev. Rul. 95-58: grantor changes trustee and names new one (as long as the new one is not “related or subordinate.” IRC Section 672(c).

2. Single Member LLCs.

3. Grantor Trust Flip Switch.

4. Powers of Appointment.



How Can The Grantor Retain Powers Jointly?

1. State Law, e.g., Cal. Prob. Code §§15403 and 15404.

2. Private Trust Company.

3. Selling assets from one trust to another (common with ILITs).


How Parents Keep ControlHow Can The Grantor Retain Powers Through A

Trustee?1. Trustee’s “decanting” powers, e.g., to change trust situs.

2. Trustee’s power to change trust due to tax laws.

3. Trustee’s power to terminate trust and distribute as needed.

4. Distribution trustee (to create a “beneficiary controlled” trust).

5. Extended distribution provisions, including incentivedistribution, drug and cult clauses.

6. Powers which are not “against” the beneficiaries.



There are two types of fiduciaries:

The one who acts after you are dead. That is the person whosejudgment you respect.

The one who acts while you are alive. That is the person whoasks “how high?” when you say “jump.”

We explain the difference to our clients. We can draft thedocuments so that upon the client’s death or incapacity, the one whoasks “how high?” is automatically removed in favor of the one whosejudgment is trusted.


How Parents Keep ControlHow Can The Grantor Retain Powers Through A

Protector?

Powers limited only by imagination. Examples:

1. Anti-beneficiary provisions, e.g., increase or decrease a beneficiary’s share.

2. Remove or add a beneficiary.

3. Remove or appoint a trustee.

4. Direct or veto a trust distribution.

See NRS Section 163.5547 for the definition of “protector” and 163.5553 for the powers of aprotector. See 12 Del. C. Section 3313 regarding advisers in general, and (f) in particularregarding protectors.



How Can The Grantor Retain Powers Through Others?

1. Independent Board Of Directors.

2. Beneficiary’s Powers of Appointment.

3. Charitable Foundation to give post-mortem control.

4. The Bar Mitzvah DVD.

5. Direct or veto a trust distribution.


How Parents Keep ControlAnother Way Of Classifying The Ways To Retain Control

The Grantor Can:

1. Change the control person.

2. Change the donees/beneficiaries.

3. Change How And When BeneficiariesGet The Gifts Or Inheritance.


How Parents Keep ControlHow Can Clients Be The Control Person Or Retain The

Right To Change The Control Person?

1. Rev. Rul. 95-58. IRS approves grantor’s power to change trusteeswithout causing estate tax inclusion.

2. Irrevocable trust owns an LLC of which the parent is the non-member manager.

3. Protectors.

4. Grantor Trust “Flip” Switch.

5. Extended distribution provisions.


How Parents Keep ControlHow Can Clients

Change The Donees/Beneficiaries?

1. Protectors.

2. Power Of Appointment.


4. State Law, e.g., Cal. Prob. C. §§15403 and 15404.

5. Selling assets from one trust to another.

6. Extended distribution provisions, including incentive distribution,drug (including testing) and cult clauses.


How Parents Keep ControlHow Can Clients Change How And When

Beneficiaries Get Gifts or Inheritance1. Protectors.

2. Power Of Appointment.


4. State Law, e.g., Cal. Prob. C. §§15403 and 15404.

5. Selling assets from one trust to another.

6. Extended distribution provisions, includingincentive distribution, drug and cult clauses.

7. Irrevocable trust owns an LLC of which the parent is the non-membermanager.

8. Grantor Trust “Flip” Switch.



Caution:Do not leave your children liquid assets.

If you do, they will drink them.(We do not represent the children. We consider treating the children as the enemy; as the parents age the children may well become that to their parents; as the parents age, the children think they are smarter than their parents. Also, you want the children – or the trustee of the children’s trust,

to be represented by separate counsel for estate and gift tax purposes.)



Caution:

Danger Of Too Much Control


How Parents Keep ControlIn re Yerushalmi

2009 WL 2982964, Bkrtcy. E.D.N.Y. (Sept. 14, 2009)

In 1995 the Yerushalmis consulted an estate planning lawyer purported to plan for thelong-term care of their youngest son, Danny, who was diagnosed with dysautonomia, a terminaldisease. They said that the family attorney advised they to create a QPRT. H transferred hisinterest in the residence to W, and W transferred the entire residence to the QPRT on May 9, 1996.Danny died in 2002. H and W filed for divorce in 2003.

On April 10, 1998, a former law partner of H sought an accounting due to allegeddiversion of receivables. Nine years later there was a judgment against H. Four months later Hfiled for Chapter 11. Three months later it was converted to Chapter 7. Fifteen months later theBK Trustee filed to avoid the transfers to the QPRT or recover the $2.5 million judgment on theground the transfers were fraudulent. Since his fraudulent conveyance argument was barred bythe 6 year statute of limitations, the trustee amended his complaint to pierce the veil of the trustand declare that it was H’s alter ego.

The court allowed the claim to proceed, indicating that it was subject to a 20 yearstatute of limitations on enforcement of judgments. Note: when finally tried the alter ego claimwas denied. Case No. 807-72816-reg, Nov. 19.2012.


How Parents Keep ControlIn re Schwarzkopf

No. 08-56974 (November 23, 2010, Ninth Circuit)

Debtors created the Apartment Trust and the Grove Trust on June 15, 1992. Theynamed their minor child Sydnee beneficiary and appointed Juan Briones trustee. Theytransferred stock of a worthless corporation to the Apartment Trust and a time when they wereinsolvent. The court also found that it was done for fraudulent purposes. The only asset in theGrove trust initially was $25. In 1997 a shell corporation owned by H bought avocado lots for theGrove Trust. The Grove Trust paid H $105,000 in unexplained fees in 2002. The Trustee providedpayments to H from both trusts “without complete documentation.” H asked for an receivedreimbursement from one of the trusts for another daughter’s wedding and for a life insurancepolicy; the Trustee testified that he did not know who H named as the beneficiary. The debtorslived rent-free with Sydnee in a home bought by the Grove Trust and in one bought by theApartment Trust.

The Trustee maintained no books or records for either trust before 2000 and oftenintermingled their funds. The trusts shared a bank account for part of 2002 and 2003. The Trusteetransferred money between the trusts and made purported loans between them that were notdocumented, had no terms for repayment and were never repaid. The trusts also paid eachother’s expenses.


How Parents Keep ControlIn re Schwarzkopf [continued[

In October, 2003, Debtors filed bankruptcy petitions seeking to discharge$5.4 million in debt. The BK trustee filed an adversary complaint seeking to recoverthe $4,000,000 in the Apartment Trust and the Grove Trust.

The courts held that the Apartment Trust was invalid because one of theDebtors’ purposes in creating it was to defraud creditors. Therefore, the alter egoissue was not relevant. “Properly designating a minor child as a beneficiary does notvalidate a trust that was created with an improper purpose.”

The court held that the Grove Trust was H’s alter ego because he acted asthe owner of the trust and its assets: “the named trustee had no role nor took anyaction…other than to write checks as demanded by [debtor].” He “dominated andcontrolled all decisions of the Grove Trust.”



Technique #1: Rev. Rul. 95-58.

The Grantor’s (Parent’s) Continuing Ability ToRemove The Trustee And Appoint A New One WithoutCausing Inclusion Of The Trust Property In TheGrantor’s Taxable Estate.


How Parents Keep ControlSample Trust Language

Section 6.2. Grantor’s Power. Grantor may, in the Grantor’sdiscretion, remove any and all Trustees, designate successorTrustees in their place and appoint co-Trustees. [1]However, the Grantor may not appoint a related or subordinateparty as the successor Trustee.[1] Rev. Rul. 95-58 (9/5/95): even had the decedent possessed the power to remove thetrustee and appoint an individual or corporate successor trustee that was not related orsubordinate (within the meaning of §672(c)), the decedent would not have retained atrustee’s discretionary control over trust income. Section 672(c) defines “related orsubordinate party” as “any non-adverse party who is (1) the grantor’s spouse if living withthe grantor; (2) any one of the following: The grantor’s father, mother, issue, brother orsister; an employee of the grantor; a corporation or any employee of a corporation in whichthe stock holdings of the grantor and the trust are significant from the viewpoint of votingcontrol; a subordinate employee of a corporation in which the grantor is an executive.”


How Parents Keep ControlTechnique #1: Rev. Rul. 95-58 [continued].

For some reason, this is not a common feature ofirrevocable trusts. We include it in every irrevocabletrust we draft. Why wouldn’t you want to give thatcomfort to every parent?

By the way, it seldom comes up; it’s seldomused. But I feel a lot more comfortable when I turn thepages in a trust and – ahhhhh – there’s the power. I canmake the parent feel comfortable. And “comfort” iswhat you owe the client.



Rev. Rul. 95-58 (August 4, 1995)

[The Ruling was prompted by IRS losses in court.]The IRS has reconsidered whether a grantor's reservation of an

unqualified power to remove a trustee and appoint a new trustee(other than the grantor) is tantamount to a reservation by the grantor ofthe trustee's discretionary powers of distribution. This issue ispresented in Rev. Rul. 79-353, as modified by Rev. Rul. 81-51. Ananalogous issue is presented in Rev. Rul. 77-182. The reconsideration iscaused by the recent court decisions in Estate of Wall, 101 T.C. 300(1993), and Estate of Vak, 973 F.2d 1409 (8th Cir. 1992), rev'g T.C. Memo1991- 503.


How Parents Keep ControlRev. Rul. 95-58 (Continued)

[The ruling next discusses the two sections that couldcause inclusion in the grantor’s estate.]

§2036(a) of the Internal Revenue Code, in general,provides that the value of the gross estate includes thevalue of all property to the extent of any interest in theproperty that was transferred by the decedent (for less thanadequate consideration) if the decedent has retained for lifethe right, alone or in conjunction with any person, todesignate the person who shall possess or enjoy theproperty or the income therefrom.



Rev. Rul. 95-58 (Continued)

§2038(a)(1), in general, provides that the value of thegross estate includes the value of all property to theextent of any interest in the property that was transferredby the decedent (for less than adequate consideration) ifthe decedent held a power, exercisable alone or inconjunction with any person, to change the enjoyment ofthe property through the exercise of a power to alter,amend, revoke, or terminate.




[If the transfer is complete, the plan didn’t work.]

§25.2511-2(c) of the Gift Tax Regulations provides that agift of property is incomplete to the extent that the donorreserves the power to revest the beneficial title to theproperty in himself or herself or the power (other than afiduciary power limited by a fixed or ascertainable standard)to name new beneficiaries or to change the interest of thebeneficiaries among themselves. See also §25.2511-2(f).



[The Ruling distinguishes the Regs. from the cases.

For purposes of §§2036 and 2038, it is immaterial in what capacitythe power was exercisable by the decedent. Thus, if a decedenttransferred property in trust while retaining, as trustee, thediscretionary power to distribute the P&I, the trust property will beincludible in the decedent's gross estate under §§2036 and 2038. The§§2036 and 2038 regs explain that a decedent is regarded as havingpossessed the powers of a trustee if the decedent possessed anunrestricted power to remove the trustee and appoint anyone(including the decedent) as trustee. Regs. §§20.2036-1(b)(3) and20.2038-1(a).




[The first taxpayer victory. The second is omitted.]

In Estate of Wall, the decedent had created a trust for the benefitof others and designated an independent corporate fiduciary astrustee. The trustee possessed broad discretionary powers ofdistribution. The decedent reserved the right to remove and replacethe corporate trustee with another independent corporate trustee.The court concluded that the decedent's retained power was notequivalent to a power to affect the beneficial enjoyment of the trustproperty as contemplated by §§2036 and 2038. See also Estate ofHeadrick, 93 T.C. 171 (1989), aff'd 918 F.2d 1263 (6th Cir. 1990).




In view of the decisions in the above cases, Rev. Rul.79-353 and Rev. Rul. 81-51 are revoked. Rev. Rul. 77-182is modified to hold that even if the decedent had possessedthe power to remove the trustee and appoint an individualor corporate successor trustee that was not related orsubordinate to the decedent (within the meaning of§672(c)), the decedent would not have retained a trustee'sdiscretionary control over trust income.


How Parents Keep ControlIRC §672(c) Related or subordinate party.

…“related or subordinate party” means any nonadverse party whois—

(1) the grantor's spouse if living with the grantor;(2) any one of the following: The grantor's father, mother, issue,

brother or sister; an employee of the grantor; a corporation or anyemployee of a corporation in which the stock holdings of the grantor andthe trust are significant from the viewpoint of voting control; a subordinateemployee of a corporation in which the grantor is an executive.…a related or subordinate party shall be presumed to be subservient tothe grantor in respect of the exercise or nonexercise of the powersconferred on him unless such party is shown not to be subservient by apreponderance of the evidence.Givner & Kaye,

A Professional [email protected] 53


Dad Trustee

Irrevocable Trust

#1: Transfers assets to the

trust

#3: Controls the trust

#2: Retains right to remove trustee

and name new (not related or

subordinate) one



Technique #2: State Law.

The Ability To Modify An Otherwise Irrevocable Trust Using The Provisions Of State Law.


How Parents Keep ControlCALIFORNIA PROBATE CODE [Edited stylistically to improve clarity]

§15403. Modification or Termination of Irrevocable Trustby All Beneficiaries.

(a) Except as provided in (b), if all beneficiaries of anirrevocable trust consent, they may compel modification ortermination of the trust upon petition to the court.

(b) If the trust’s continuance is necessary to carry out amaterial trust purpose, it cannot be modified or terminatedunless the court, in its discretion, determines that the reason fordoing so under the circumstances outweighs the interest inaccomplishing the material purpose. …


How Parents Keep Control§15403. Modification or Termination of Irrevocable Trust

by All Beneficiaries.

Example: Trust was drafted to benefit Dad’s two sons. Trust namedthe two sons as the beneficiaries. (Most trusts use general language,e.g., all children of grantor.) Trust owned a large ($20,000,000)insurance policy on Dad’s life.

Dad later remarried and had a daughter. The two sons (minors),represented by their mother (Dad’s first wife), filed a petition with theProbate Court to modify the trust to include the daughter (also a minor)as an equal beneficiary. (Had wife #1 failed to do so, Dad could haveeasily reduced the share for the sons or disinherited them from the restof his massive estate.) Since the sons were minors and their motherwas his ex-wife, we felt a court order was necessary.Givner & Kaye,


How Parents Keep ControlCALIFORNIA PROBATE CODE[Edited stylistically to improve clarity]

§15404. Modification or termination by settlor and all beneficiaries

(a) If the settlor and all beneficiaries of a trust consent, theymay compel the modification or termination of the trust.

(b) If any beneficiary does not consent to the modification ortermination of the trust, upon petition to the court, the otherbeneficiaries, with the consent of the settlor, may compel amodification or a partial termination of the trust if the interests ofthe beneficiaries who do not consent are not substantiallyimpaired.


How Parents Keep ControlCALIFORNIA PROBATE CODE[Edited stylistically to improve clarity]

§24. Beneficiary"Beneficiary" means a person to whom a donative transfer of

property is made or that person's successor in interest, and:(a) As it relates to the intestate estate of a decedent, means an heir.(b) As it relates to a decedent’s testate estate, means a devisee.(c) As it relates to a trust, means a person who has any present or

future interest, vested or contingent.(d) As it relates to a charitable trust, includes any person entitled to

enforce the trust.



Huscher v. Wells Fargo Bank (2004), 121 CA 4th 956:

Modification of a trust by the statutorilyprescribed procedure is effective unless thetrust’s stated modification procedure isexplicitly or implicitly exclusive (decided underpredecessor to Probate Code §15401 – formerCiv. Code §2280, which was repealed in 1986).



§15404. Modification or termination by settlor and all beneficiaries

Example: The second successor trustee of the Trust was a bank. Dadand Mom wanted to remove the bank in favor of their two children actingtogether as the second successor co-trustees should that come to pass.Also, Dad and Mom no longer felt that it was necessary to have principaldistributions at ages 35, 40 and 45 after the death of the survivor of Dadand Mom; outright distribution would be fine.

Since this trust instrument gave no other ways to accomplish themodification, Dad and Mom and the two children signed a document tomodify the Trust in both respects. The children represented their ownminor children. All agreed that a court order was unnecessary.


How Parents Keep ControlMAINE TITLE 18-B §410.Modification or termination of trust; proceedingsfor approval or disapproval

2. Modification or termination proceeding.A proceeding to approve or disapprove a proposed

modification or termination under sections 411 to 416, ortrust combination or division under section 417, may becommenced by a trustee or beneficiary, and a proceeding toapprove or disapprove a proposed modification ortermination under section 411 may be commenced by thesettlor. The settlor of a charitable trust may maintain aproceeding to modify the trust under section 413.Givner & Kaye,


How Parents Keep ControlMAINE TITLE 18-B §411.Modification or termination of noncharitableirrevocable trust by consent

1. Consent of settlor and all beneficiaries. If the settlor and all beneficiariesconsent to the modification or termination of an irrevocable trust, the courtshall enter an order approving the modification or termination even if themodification or termination is inconsistent with a material purpose of thetrust, if the court finds that the modification or termination is in the bestinterests of the beneficiaries. A settlor's power to consent to a trust'smodification or termination may be exercised by an agent under a power ofattorney only to the extent expressly authorized by the power of attorney orthe terms of the trust; by the settlor's conservator with the approval of thecourt supervising the conservatorship if an agent is not so authorized; orby the settlor's guardian with the approval of the court supervising theguardianship if an agent is not so authorized and a conservator has notbeen appointed.


How Parents Keep ControlOther States

Missouri Revised Statutes Chapter 456, Section 456.4A-411Ohio Revised Code Section 5804.11Alaska Statutes 13.36.360Kansas Uniform Trust Code 58a-411Michigan Compiled Laws 700.7411New Mexico 46A-4-411

Note how they all use “411” in some fashion. That means they derivefrom the Uniform Trust Code. A total of at least 21 states have adoptedthe UTC.

So here’s how I would explain it: State law allows you a convenientway to change an irrevocable trust, even with out going to court.



Technique #3: Protectors.

Appointing Someone In The IrrevocableTrust Who Has The Power To Make SelectedChanges In The Future, Presumably At TheUrging Of The Grantor (Parent), Without ADuty To The Beneficiaries.


How Parents Keep ControlWhat Is A Trust Protector?

In offshore Foreign Asset Protection Trusts the role of "AssetProtector" is a standard. Offshore countries have extensivenetworks of Trust Companies specifically designed toaccommodate the implementation of Trust Agreements withready Trustees. The election to have a TP, who is usually a U.S.Person, is a normal offshore business transaction.

Although in Foreign Asset Protection Systems the TP role isstandard, in the U.S. only a few states have a legally recognizedthe dual existence of Trustee and Trust Protector. Those statesinclude Alaska, DE, ID, NV, SD, and Wyoming.



Nevada Revised Statutes. [as a sample]

NRS 163.5547 “Trust protector” defined. “Trustprotector” means any person whose appointment isprovided for in the instrument.

(Added to NRS by 2009, 788)NRS 163.554 “Fiduciary” defined. “Fiduciary” means a

trustee or custodian under any instrument, or an executor,administrator or personal representative of a decedent’sestate or any other person, including an investment trustadviser, trust protector or a trust committee which is actingin a fiduciary capacity for any person, trust or estate.



Why Do You (Grantor – Parent) Want TheProtector To Not Be A “Fiduciary”?

If the Protector is a “Fiduciary,” the Protector owes a dutyto the beneficiaries. By contrast, the Grantor (Parent) wantsthe Protector to do whatever the Parent wants done. Thatmay be something contrary to the best interests of thebeneficiaries, e.g., to cut one of them out; to bring in a newbeneficiary; to change the manner of distribution.


How Parents Keep ControlNRS 163.5553 Powers of trust protector.

1. A TP may exercise the powers provided…in the instrument in the bestinterests of the trust. The powers exercised by a TP are at the sole discretionof the TP and are binding on all other persons. The powers granted to a TP mayinclude, without limit, the power to:

(a) Modify or amend the instrument to achieve a more favorable tax statusor to respond to changes in federal or state law.

(b) Modify or amend the instrument to take advantage of changes in the ruleagainst perpetuities, restraints on alienation or other state laws restricting theterms of a trust, the distribution of trust property or the administration of thetrust.

(c) Increase or decrease the interests of any beneficiary under the trust.(d) Modify the terms of any power of appointment granted by the trust. A

modification or amendment may not grant a beneficial interest to a person whichwas not specifically provided for under the trust instrument.


How Parents Keep ControlNRS 163.5553 Powers of trust protector (continued)

(e) Remove and appoint a trustee, trust adviser, investment committeemember or distribution committee member.

(f) Terminate the trust.(g) Direct or veto trust distributions.(h) Change the location or governing law of the trust.(i) Appoint a successor trust protector or trust adviser.(j) Interpret terms of the instrument at the request of the trustee.(k) Advise the trustee on matters concerning a beneficiary.(l) Review and approve a trustee’s reports or accounting.

2. The powers provided pursuant to subsection 1 may be incorporated byreference to this section at the time a testator executes a will or a settlor signs atrust instrument. The powers provided pursuant to subsection 1 may beincorporated in whole or in part.



The TP’s power comes from the trust instrument. Itsets forth the dual function of the Trustee and the TP.While the Trustee can be a bank or trust company, orother financial institutions, the TP is usually a personclose to the family (it could be a CPA, accountant, orlawyer who is already the family consigliore).

The TP's powers can take any form, limited only bythe wishes of the Grantor(s) and their imagination.



Technique #4:

Single Member LLCs.



Technique #4: Single Member LLCs.

Relationship To Creditor Planning

Since LLCs commonly arise in a creditorprotection context, let us focus, for amoment, on an often ignored aspect ofcreditor protection planning.



Know What Clients Fear:

Three Different Types Of Liability


How Parents Keep ControlDistinguish Three Different Types Of Asset Protection

Up – problem with the assetgets to you

You

Your Entity

Valuable asset#1

Valuable asset #2: someone dies

The decedent’s

family wants to

sue you



Up – problem with the assetgets to you

You

Your Entity

Valuable asset#1


But is blocked by your entity from doing

so



Down – problem with youget to the asset

You get into a car crash which is your fault and

someone gets seriously injured

Your Entity

Valuable asset#1

Valuable asset#2

The judgment creditor wants to get your assets



Down – problem with youget to the asset You

Your Entity

Valuable asset#1

Valuable asset#2

But the judgment creditor is blocked by

your entity



Collateral – problem withone asset get to the other

You

Your Entity


Valuable asset#2

The decedent’s family wants to get your

equity in



Collateral – problem withone asset get to the other

You

Your Entity

LLC For Valuable Asset #1

LLC For Valuable Asset #2

But they are blocked because each is in a

separate LLC



Problem WithSingle Member LLCs.

In Bankruptcy


How Parents Keep ControlNevada Single Member LLC

Bad (In re Ashley Albright1 and Olmstead2 (Florida 2010))

1. 2003 Bankr. LEXIS 291 (Bkrptcy. Colo. Case #01-11367 ABC, 4-4-2003).2. 2010 WL 2518106 (June 24, 2010).

Client

Sole Manager and

MemberSingle Member

Nevada LLC

valuable assets

Asset Protection Planning: The Advanced Course

82Givner & Kaye,

A Professional [email protected]


Obvious Solution To TheProblem With

Single Member LLCs.In Bankruptcy


How Parents Keep ControlNevada Multi-Member LLC

Note the problem of doing this in California after January 1, 2014, which is why we have switched to using limited partnerships.

Client

Manager and

Member Single Member Nevada

LLC

valuable assets

84

Children’s Trust

Givner & Kaye, A Professional [email protected]

How Parents Keep ControlTechnique #4: Variation 1SMLLCs With An SSST.

The Grantor (Parent) Transfers To TheIrrevocable Trust All Of The MembershipInterests In A Single Member LLC (“SMLLC”)In Which The Parent Is The Non-MemberManager. (Or, The Trustee Contributes TheAssets Down To Such An SMLLC.)


How Parents Keep ControlVanilla Structure


The first diagram is of a structure that you would set up fora client in any state. The purpose is so that the client can directlymanage the assets of the trust without being reliant on the trustee.Your client may well appreciate the fact that his or her sister orbrother agreed to act as trustee. However, your client doesn’twant to bother the family member with having to sign escrowpapers when real estate is bought and sold, or with approvingstock transactions with the broker, or similar paperwork.

The danger is that too much control might be viewed by ahostile third party as a way to ignore the trust, perhaps using analter ego attack.

How Parents Keep ControlVanilla Structure

Trustee

Irrevocable Trust For

Kids

Single member LLCwith $10,000,000 of

liquid assets

Dad

Non-member manager


How Parents Keep ControlAPT Structure


The second diagram is of a structure that you would set up for aclient in a state with favorable DAPT (domestic asset protection trust)legislation. We use Nevada both because people in L.A. are comfortablewith Las Vegas and due to the superior Nevada law (next page).

Now you have Nevada trustee that does not want anything to dowith the trust assets, so your client wants to directly manage the trustassets without bothering the family member who agreed to act as co-trustee or distribution advisor.

Again, there is the danger is that too much control might beviewed by a hostile third party as a way to ignore the trust, perhaps usingan alter ego attack.

How Parents Keep ControlWhy In California We Use Nevada Law


1. People in L.A. are comfortable with Las Vegas both due toproximity (less than 1 hour by air, 5 hours by car) and frequency of visits.

2. Nevada has the 2nd shortest statute of limitations on fraudulenttransfers in the country in states with good DAPT laws (Ohio has 6months; Nevada’s is 2 years; tied with Hawaii; South Dakota and Utah arenext with 3 years; all the others, e.g., AK, DE, WY, etc., are 4 years).

3. Nevada has no exceptions to its fraudulent transfer laws. EvenAlaska has an exception for a divorcing spouse. Most states haveexceptions for child support and pre-existing torts.

4. Effective 10/1/11, the charging order limit is explicitly the soleremedy, even for shareholders of corporations. Equitable remedies suchas constructive and resulting trusts and veil piercing are not available.

How Parents Keep ControlNevada SSST With SMLLC

Three Alternatives For Trustee:

(i) a Nevada trust company;(ii) a friend or relative in

Nevada; or(iii) establish your own

unregulated trustcompany.

Client

Sole Manager(in the event of a personal

insolvency, the court appointed trustee should not be able to

take over as manager)

Nevada Self-Settled Spendthrift

Trust

Grantor/Creator/Settlor/Trustor Trustee

Single Member Nevada or Delaware

LLC

valuable assets

90

Layering

Givner & Kaye, A Professional [email protected]


Technique #4: Variation 2SMLLC With An SSST And A PTC

(preview of the next technique).

In this structure the client establishes the client’s ownunregulated private trust company to be the trustee of the self-settled spendthrift trust. See IRS Notice 2008-63 (July 11, 2008)on when the use of a PTC will cause the value of the trust assetsto be included in a grantor’s estate under IRC Sections 2036(a)or 2038(a), and other important issues.


How Parents Keep ControlTHE VERY BEST STRUCTURE.

Nevada SSST

Client

Single Member LLC

Client as beneficiary

Non-member manager Children’s

Trust

Nevada Private Trust

Company

owns

trustee

trustee

92Givner & Kaye,

A Professional [email protected]


Technique #4 Variation #3: Using A Partnership

To Own A Life Insurance Policy.

Instead Of Establishing The Typical ILIT (IrrevocableLife Insurance Trust), The Parent Establishes (Or Uses AnExisting) FLP (Family Limited Partnership) To Own LifeInsurance On The Parent’s Life. Avoids Crummey NoticeIssues. Requires Other Assets For It To Be A “Real”Partnership. Requires Minimization Of Parent’s Interest InThis Particular FLP To Minimize Amount Of InsuranceProceeds Included In Parent’s Estate.



Enterprises, L.P.$1,000,000 in a securities account

and$10,000,000 policy on Dad

2% GP

8% LPProperties,

Inc.

Heirs’ Trust #2

90% LP

Family Trust

Heirs’ Trust #1



Technique #5: Private Trust Company.

Using Notice 2008-63, Mom and Dad set up their ownPTC. They can be the officers and the board of directors.However, if the PTC is the trustee of their SSST, they cannotbe on the (i) discretionary distribution committee and (ii)amendment committee. Otherwise, the trust’s assets will beincluded in their estate.



George E. Burns, CommissionerFinancial Institutions DivisionNevada Department of Business and Industry2785 East Desert Inn Road, Suite 180Las Vegas, NV 89121

Re: Givner Holdings, Inc.Family Trust Company Notification

Dear Mr. Burns:

I am writing on behalf of Givner Holdings, Inc., a Nevada corporation (the “Company”), to notifyyou of the Company’s intention to act as a non-licensed family trust company in the State of Nevada.

The Company intends to act as a “family trust company,” as that term is defined in Section 10 ofrecently enacted Senate Bill No. 365, for the Givner family. The “designated relative” of the Company, as thatterm is defined in Section 7 of Senate Bill No. 365, is Bruce Givner.

The Company warrants and represents that it does not: transact trust company business with;propose to act as a fiduciary for; or solicit trust company business from, persons who are not family members.

Please provide me with written confirmation of your receipt of this letter and let me know if youhave any questions or require additional information regarding this matter.



Technique #5: Private Trust

Company.



The next three slides are the body of a February 25, 2010, e-mail response which we received from a nice man in theDepartment of Financial Institutions (1810-13th Street, Sacramento,California 95811-7118). This was in response to a question aboutwhether we could set up an LLC to act as the trustee of anirrevocable trust which holds life insurance policies on the lives ofBruce and Kathy Givner for the benefit of our children, without theLLC having to be licensed. That was one in a series of e-mails withthe nice gentleman (assistant general counsel).

Be clear: his response is not binding on the DFI. It was histhoughts on that given day. He might change them later.


How Parents Keep ControlThe trust company laws of California are blunt and difficult

at the same time. Financial Code Section 107.5 provides, inpart, that "It shall be unlawful for an person, corporation, limitedliability company, partnership, firm, or any other form of businessentity allowed by law, to engage in or transact . . . trust businesswithin this state except by means of a corporation duly organizedfor that purpose.“

Financial Code §106 defines "trust business" as "thebusiness of acting as executor, administrator, guardian orconservator of estates, assignee, receiver, depositary or trusteeunder the appoint of any court, or by any authority of any law ofthis or any other state or of the United States, or as trustee for anypurpose permitted by law."



While the two sections taken together would appear topreclude [Givner’s] proposal, that is not necessarily the case. TheDFI has in previous situations focused on what the Legislaturemeant in §106 by the phrase "the business of." We have generallyheld that the entity must be engaged in more than one transaction(e.g., more than one executorship) with the intent to make a profitto fall within the confines of being in "the business of" trustbusiness. This position is bolstered by the exception toconducting intrastate business found in Corporations Code§191(c)(8) (although we concede that not all trust activities may beconcluded in 180 days). (Also, the non-profit corporations laws ofthis state allow for a non-profit corporation to act as trustee underany trust incidental to the principal interests of the corporation.(See Corporations Code §§5140(k), 7140(k), 9140(k).))



So, under our current interpretation of the law, ifan entity is going to conduct more than one activity thatwould be considered "trust business" for profit (i.e., actas trustee for more than one estate), then it may onlydo so in the form of a corporation licensed by theDepartment of Financial Institutions to conduct trustbusiness.

I hope this helps guide you to a decision.



Children’s Trust

Private Trust

Company

Single member LLCwith $10,000,000 of

liquid assets

owns

trustee of



Maurits Cornelis Escher (June 17, 1898 – March 27, 1972)



Technique #6: Grantor Trust Flip Switch.*

*We will not, today, address the fascinating question of whether a change from grantor trust status to complextrust status (or the termination of grantor trust status) causes a recognition of gain when there is an installmentnote outstanding. Similarly, the switch from complex trust status to grantor trust status may be fraught withincome tax problems. So before engineering a switch, the income tax issues must be addressed.



The Conceptual Problem:

The Income Tax and the Transfer Taxes are not In Pari Materia (from the same material - comparable).

As a result:

income tax “own” transfer tax “own”



Technique #6: Grantor Trust Flip Switch (cont’d #1).

For all clients, virtually all CPAs, and even mostestate planning lawyers, the concept of a trust which is“owned” by the parent for income tax purposes but not“owned” by the parent for estate tax purposes is nearlyimpossible to understand. The real difficulty is pickingthose powers which cause income tax ownership withoutestate tax ownership.


How Parents Keep ControlTechnique #6: Grantor Trust Flip Switch.

Default Status: Grantor Trust

For wealthy clients the irrevocable trust forthe benefit of their children is automatically agrantor trust – ignored as to the parents. Thisway the parents pay the income tax on the trust’searnings, depleting the parents’ estate by theincome tax without that payment beingconsidered a gift.




There is no absolute agreement on which powers should be used for this purpose.However, we use these two:

(i) Section 675(4)(c), the grantor’s “power to reacquire trust corpus by substitutingother property of an equivalent value” (problem with a trust created by husband and wife whenone of them dies) and

(ii) Section 677(a)(3) the trustee’s power to apply “income without the approval orconsent of any adverse party” “to the payment of premiums on policies of insurance on the lifeof the grantor or the grantor’s spouse…”


How Parents Keep ControlTechnique #6: Grantor Trust Flip Switch (cont’d)

Para. 2.3. Grantor Trust Rules. The followingsubparagraphs give Grantor a power which will cause the Trust to betreated as a so-called “Grantor Trust” for income tax purposes. One ofthe following subparagraphs gives the Trustee a power which will causethe Trust to be treated as a so-called “Grantor Trust” for income taxpurposes. In other words, “the grantor…shall be treated as the owner of[the] trust…” However, these paragraphs do not cause the Trust’s assetsto be included in Grantor’s estate. If any trust property is included inGrantor’s gross estate as finally determined for Federal estate taxpurposes under any IRC provision, then an amount equal to the taxesattributable to that inclusion shall be distributed to Grantor’s estate, andeach Trust beneficiary’s Trust interest shall be reduced proportionately.



Technique #6: Grantor Trust Flip Switch (cont’d).

Para. 2.3.1. Reacquire Trust Corpus. Grantor mayreacquire the trust corpus by substituting other property of anequivalent value. This is intended to make this Trust a GrantorTrust for income tax purposes. This power (i) is not held in afiduciary capacity, and (ii) may be exercised without the consentof any fiduciary of this Trust. No claim of fiduciary duty may beasserted as a defense against the exercise of this power.Grantor shall have the right to release this power at any time.The Trustee shall have the authority to re-grant this power toGrantor at any time after it is released.



Technique #6: Grantor Trust Flip Switch (cont’d).

Para. 2.3.2. Restriction. Grantor may not reacquire theTrust corpus to the extent the Trust corpus consists of aresidence that was contributed to this Trust from Grantor’squalified personal residence trust. In other words, this power toreacquire Trust corpus may not be used to avoid the Reg.§25.2702-5(c)(9) prohibition on the sale or transfer of theresidence to Grantor or a grantor trust. The Trustee is alsoprohibited from selling or transferring that former residence ofGrantor to Grantor, Grantor's spouse, or an entity controlled byGrantor or Grantor's spouse.




Para. 2.3.3. Right To Apply Trust Income.Trustee shall have the right to apply the income of thetrust corpus to the payment of premiums on a policy orpolicies of insurance on Grantor’s life. The Trusteeshall have the right to terminate this power at anytime. The Trustee shall have the authority to revivethis power after it has been terminated.




Para. 2.3.4. Trustee’s Discretion. The Trustee may (i)terminate, or (ii) apply to a lineal descendant of Grantor,either or both of the preceding powers which make this agrantor trust. The Trustee shall have the authority to reviveeither or both of these powers after either or both has beenterminated. Also, the Trustee may reconfigure this Trust asone or more electing small business trusts or qualifiedsubchapter S trusts. See Article 7.




Para. 2.3.5. Support Obligation. Grantor intendsthis rule to apply during periods in which the Trustee doesnot wish the trust to be a grantor trust for income taxpurposes. However, the preceding sentence is a guidefor the Trustee’s exercise of discretion. Trust distributionsmay not be used to discharge a support obligation of theparents of the recipient of the distribution.



Technique #7: Powers Of Appointment.


How Parents Keep ControlSection 2041 Powers of Appointment.

(a) In general.

The value of the gross estate shall include the value of all property—….

(2) Powers created after October 21, 1942.

To the extent of any property with respect to which the decedent has at the timeof his death a general power of appointment created after October 21, 1942, or withrespect to which the decedent has at any time exercised or released such a power ofappointment by a disposition which is of such nature that if it were a transfer of propertyowned by the decedent, such property would be includible in the decedent's gross estateunder sections 2035 - 2038, inclusive. For purposes of this paragraph (2), the power ofappointment shall be considered to exist on the date of the decedent's death even thoughthe exercise of the power is subject to a precedent giving of notice or even though theexercise of the power takes effect only on the expiration of a stated period after its exercise,whether or not on or before the date of the decedent's death notice has been given or thepower has been exercised.Givner & Kaye,



Sample Trust Language

5.5.1. Appointment Power

Upon a beneficiary’s death, the Trustee shall distribute theundistributed balance of that beneficiary’s Trust to the beneficiary’sspouse, or to one or more of the beneficiary’s issue then living, and onthe terms and conditions, either outright or in trust, as that beneficiaryshall appoint. The beneficiary shall exercise this by (i) an acknowledgedinstrument specifically referring to and exercising this continuingwithdrawal power and delivered to the Trustee; or (ii) a Will specificallyreferring to and exercising this appointment power.



Technique #8: Trustee’s Decanting Powers.


How Parents Keep ControlTrustee’s “decanting” powers.

New York was the first state to enact decanting legislation. Althoughamended since its original enactment in 1992, it essentially allows a trustee whohas authority to invade the trust corpus for a beneficiary to pay the corpus over toanother trust for the beneficiary. See N.Y.E.P.T.L. section 10-6.6. Legislationsomewhat similar to that in New York now has been enacted in Alaska, Arizona,Delaware, Florida, Nevada, New Hampshire, North Carolina, South Dakota, andTennessee, which appears to reflect an acknowledgment of such a statute's utility.Alaska Stat. section 13.36.157; Ariz. Rev. Stat. section 14-10819; Del. Code Ann.tit. 12, section 3528; Fla. Stat. section 736.04117; Nev. Rev. Stat. section 163.37;N.H. Rev. Stat. section 564-B:4-418; N.C. Gen. Stat. section 36C-8-816.1; S.D.Laws sections 55-2-15 to 55-2-21; Tenn. Code Ann. section 35-15-816. Also, withheightened appreciation for the authority to distribute to new trusts, manypractitioners now include decanting provisions in their trust forms.


How Parents Keep ControlThe goals or purposes of using decanting include:

(1) Addressing changed circumstances, such as changes in applicable fiduciary or tax law or changes infamily circumstances or dynamics.(2) Protecting the tax treatment of a trust.(3) Modifying administrative provisions, e.g., restrictions on investment powers or to create a directed trust.(4) Granting a beneficiary a power of appointment, presently exercisable or otherwise.(5) Reducing administrative costs.(6) Altering trusteeship provisions such as the identity or manner of appointing fiduciaries.(7) Extending the termination date of a trust. (A large corporate trustee will probably refuse to accept atrust the purpose of which is to accomplish this.)(8) Converting a nongrantor trust to a grantor trust or the reverse.(9) Changing a trust's governing law.(10) Dividing trust property to create separate trusts.(11) Reducing potential liability.(12) Converting a trust into a supplemental needs trust to permit a beneficiary to qualify for certaingovernmental benefits.(13) Making trust interests spendthrift or the reverse.(14) Correcting a drafting error without the necessity of going to court.



Technique #15: The Bar Mitzvah DVD.


How Parents Keep ControlThe “Bar Mitzvah” DVD

The ideas behind this:

1. With extended distribution provisions, the trustees – 20 yearsfrom now – will be asking themselves “what would Joe have wanted usto do in this situation?”

2. Some language is best left out of a trust. Some intent is noteven well written as “precatory” language.

3. Maybe you will need one DVD for the trustees; another one forthe board of directors of the business; and yet another for your great-grandchildren. After all, how much are your great-grandchildren likely toknow about you?



The “Bar Mitzvah” DVD

+



The “Bar Mitzvah” DVD

1. Write and re-write the script, so you are clear on the points you wish to cover. Have someone else review and edit the script. For wealthy clients, hire an independent writer, e.g., someone who would write a biography of your client.

2. No more than 40 minutes.

3. Professional taping and editing if possible, e.g., $1,500.

4. Store on the web.




[sample – first page]

Irrevocable Trust Maintenance ProgramEach service is performed by means of a phone call from our office to you twice each year. The

annual fee is eight hundred dollars ($850) per year. Exceptions are noted.

Service Fees

TRUST INSTRUMENTStill happy with the:

specific bequests, if any?beneficiaries?manner of distribution to the beneficiaries?contingent remainder beneficiaries?trustees? successor trustees?protectors?grantor trust status?

If the answer to any question is “no,” can the change be made by:grantors (you) under the trust instrument?protectors under the trust instrument?Beneficiaries under the trust instrument?

If so, we prepare the documents.If not, is a Probate Court petition appropriate?

IncludedIncludedIncludedIncludedIncludedIncludedIncludedIncludedIncludedIncludedIncludedIncludedAs incurred


Advice From A Parent With Two Perfect Children:

The Final Technique:

When All Else Fails, A Good Whipping

Will Keep A Child In Line



As a result of these whippings, I spoiled my children. But they are not spoiled.Givner & Kaye,



Questions and Answers
