trust situs for dynasty trusts and dapts: key...
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Trust Situs for Dynasty Trusts and DAPTs: Key Differences Among Top-Tier States Selecting the Best Situs Among Nevada, Delaware, Alaska, South Dakota, Ohio, Tennessee and Wyoming--and Why
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THURSDAY, AUGUST 8, 2013
Presenting a live 90-minute webinar with interactive Q&A
Steven J. Oshins, Oshins & Associates, Las Vegas, Nev.
Eido M. Walny, Walny Legal Group, Fox Point, Wis.
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Trust Situs for Dynasty
Trusts and DAPTs: Key Differences among
Top-Tier States
Steven J. Oshins, Esq., AEP (Distinguished) Eido M. Walny, Esq., AEP, EPLS
Law Offices of Oshins & Associates, LLC Walny Legal Group LLC
1645 Village Center Cir., Ste. 170 7670 N. Port Washington Road
Las Vegas, NV 89134 Fox Point, WI 53217
Phone: 702-341-6000 Phone: 414-751-7531
Fax: 702-341-6001 Fax: 414-247-9959
Website: www.oshins.com Website: www.walnylegal.com
Email: [email protected] Email: [email protected]
Copyright © 2013 by Steven J. Oshins and Eido M. Walny. All rights reserved.
7
Staggered Distribution Trust
Nearly every trust you see from most every
law firms is drafted as a staggered
distribution trust
A “staggered distribution trust” is a trust that
makes mandatory distributions to the
beneficiary at staggered ages (I.E. 25/30/35)
This subjects the trust assets to potential
estate taxes, creditors and divorcing spouses
8
Beneficiary Controlled Trust
Rather than make mandatory staggered
distributions, why not just pick an age to give
the beneficiary control?
Very few attorneys understand this which is
why nearly every trust has the same drafting
error
Once the client understands that the trust can
be drafted as a beneficiary controlled trust,
there is no reason to ever terminate the trust
9
Dynasty Trust
A “Dynasty Trust” is an irrevocable trust that
is not subject to estate taxes for as long as
state law allows
It can also be drafted to be protected from
creditors and divorcing spouses
Rule against perpetuities limitations
10
Staggered Distribution Trust
Pot Trust
for Descendants
Child #1
Child #2
Child #3
Distributes at 25, 30 and 35 Distributions at 25, 30 and 35 Distributions at 25, 30 and 35
11
Dynasty Trust
Pot Trust
for Descendants
Child #1
Child #2
Child #3
Grandchild #1
Grandchild #2
Grandchild #3
Grandchild #4
Grandchild #5
Grandchild #6
12
$1 Million Example: Dynasty Trust vs. 40%
Estate Tax every 30 Years
After-Tax Growth
Value of Dynasty Trust
After 120 Years
Value of Property
if No Trust
3.00% $34,710,987 $4,498,544
4.00% $110,662,561 $14,341,868
5.00% $348,911,561 $45,218,993
6.00% $1,088,187,748 $141,029,132
7.00% $3,357,788,383 $435,169,374
8.00% $10,252,992,943 $1,328,787,885
9.00% $30,987,015,749 $4,015,917,241
10.00% $92,709,068,818 $12,015,095,319
13
$1 Million Example: Two-Generation
Trust vs. 50% Estate Tax in 30 Years
Simple example – Just two generations
Assume 7.2% after-tax growth – Rule of 72 – Doubles every 10 years
Results… – With trust = $8M to grandchild
– Outright = $4M to grandchild / $4M to IRS
14
Key Dynasty Trust States
Characteristics
Term
Taxes
3rd Party Spendthrift Protections
DAPT Status
15
Key Dynasty Trust States (in alphabetical order)
Alaska
Delaware
Nevada
New Hampshire
Ohio
South Dakota
Tennessee
Wyoming
16
Key Dynasty Trust States –
Perpetuities
The leading Dynasty Trust states either allow
perpetual trusts or allow trusts to last
significantly longer than the traditional rule
against perpetuities will allows
17
Key Dynasty Trust States –
Perpetuities
Alaska- Perpetual (1,000 if exercise POA)
Delaware- Perpetual for personal property /
110 years for real estate
Nevada- 365 years
New Hampshire- Perpetual
Ohio- Perpetual
South Dakota- Perpetual
Tennessee- 360 years
Wyoming- 1,000 years
18
Key Dynasty Trust States –
State Income Tax
The leading Dynasty Trust states don’t have a
fiduciary income tax (or don’t apply it to trusts
set up by an out-of-state settlor)
19
Key Dynasty Trust States –
State Income Tax
Alaska- None
Delaware- None (except residents)
Nevada- None
New Hampshire- None (except dividends,
interest on residents)
Ohio- None (except residents)
South Dakota- None
Tennessee- None (except dividends, interest
on residents)
Wyoming- None
20
Key Dynasty Trust States –
Third-Party Spendthrift Trust Protection –
Divorcing Spouse/Child Support
The leading Dynasty Trust states have
spendthrift trust laws protecting third-party
trusts from…
– Divorcing spouses
– Child support
Many states make exceptions by statute or by
case law
Discretionary trusts vs. Support trusts
21
Key Dynasty Trust States –
Third-Party Spendthrift Trust Protection –
Divorcing Spouse/Child Support
Alaska- Protected
Delaware- Not protected from either (by case law)
Nevada- Protected
New Hampshire- Not protected from either (by
statute)
Ohio- Not protected from child support (by statute)
South Dakota- Protected
Tennessee- Protected
Wyoming- Not protected from child support (by
statute)
22
Key Dynasty Trust States – DAPT State Ranking
The leading Dynasty Trust states also have
favorable Domestic Asset Protection Trust
legislation
– Many trusts include the settlor as a discretionary
beneficiary (or give a Trust Protector the power to
add the settlor in as a discretionary beneficiary)
23
Key Dynasty Trust States – DAPT State Ranking (as of July 2013)
Alaska- #5
Delaware- #6
Nevada- #1
New Hampshire- #9
Ohio- #3 (tie)
South Dakota- #2
Tennessee- #3 (tie)
Wyoming- #7
24
Overall Dynasty Trust State Rankings (as of Oct. 2012 – next update Oct. 2013)
South Dakota- #1
Alaska- #2
Nevada- #3
Tennessee- #4
Delaware- #5 (tie)
Wyoming- #5 (tie)
New Hampshire- #7
Ohio- #8
25
Domestic Asset Protection Trust
A DAPT is a U.S. asset
protection trust in which the
trust grantor is a permissible
beneficiary
26
Does a DAPT Work?
A DAPT definitely works for a resident of the
DAPT state
Does it work for a resident of a non-DAPT
state who sets it up under the laws of a
DAPT state?
Very large majority believe it works
Since first DAPT statute in 1997, only two cases
Dahl v. Dahl, Fourth Judicial District Court, Utah County,
State of Utah, Civil No. 090402989, November 1, 2011
In re Huber, 2013 Bankr. LEXIS 2038, May 17, 2013
27
In re Huber
In re Huber, 2013 Bankr. LEXIS 2038, May 17, 2013
Donald Huber was a real estate investor
The real estate market was crashing and Huber had numerous
personal guarantees
He set up an Alaska DAPT and transferred in $10,000, a 99% LLC
interest (holding more than 25 different LLC interests), and
other assets, thereby leaving himself insolvent
Trust assets were not protected
Blatant fraudulent conveyance
Filed for bankruptcy: 10-year clawback per Sec. 548(e)
Choice of law issue: Washington resident (bad WA
statute/Mastro case was WA resident)
28
Dahl v. Dahl
Dahl v. Dahl, Fourth Judicial District Court, Utah
County, State of Utah, Civil No. 090402989,
November 1, 2011
Charles and Kim Dahl were Utah residents
Charles set up a Nevada DAPT and transferred his residence (with Kim
jointly transferring the residence) and a 97% LLC membership interest
(holding brokerage assets) to the DAPT
Charles and Kim divorced
Trust assets were protected
Charles won on Summary Judgment
“As noted by the Court in Innerlight v. Matrix Group, LLC, 2009 UT 31,
choice of law and choice of forum provisions contained in contracts
and legal documents are enforceable.” [Emphasis added.]
29
Does a DAPT Work?
If almost all potential
creditors have been
frustrated to the point
where they choose to
either settle the dispute
or go away altogether,
doesn’t this mean that
almost EVERY DAPT has
worked?
30
Key DAPT States (in alphabetical order)
Alaska
Delaware
Nevada
New Hampshire
Ohio
South Dakota
Tennessee
Wyoming
31
Key DAPT States –
State Income Tax
The leading DAPT states don’t have a
fiduciary income tax (or don’t apply it to trusts
set up by an out-of-state settlor)
32
Key DAPT States –
State Income Tax
Alaska- None
Delaware- None (except residents)
Nevada- None
New Hampshire- None (except dividends,
interest on residents)
Ohio- None (except residents)
South Dakota- None
Tennessee- None (except dividends, interest
on residents)
Wyoming- None
33
Key DAPT States –
Statute of Limitations
The leading DAPT states have a short statute
of limitations period
– Preexisting creditors vs. Non-preexisting creditors
– Fraudulent conveyance issues
34
Key DAPT States –
Statute of Limitations
Alaska- 4 years / 1-year discovery
Delaware- 4 years / 1-year discovery
Nevada- 2 years / 6-month discovery
New Hampshire- 4 years / 1-year discovery
Ohio- 1.5 years / 6-month discovery
South Dakota- 2 years / 6-month discovery
Tennessee- 2 years / 6-month discovery
Wyoming- 4 years / 1-year discovery
35
Key DAPT States –
Exception Creditors
The leading DAPT states have minimal
exception creditors
What are exception creditors?
Examples
– Divorcing spouse
– Alimony
– Child Support
– Preexisting tort creditors
36
Key DAPT States –
Exception Creditors
Alaska- Divorce
Delaware- Divorce, Alimony, Child Support, Preexisting Tort
Creditors
Nevada- None
New Hampshire- Divorce, Alimony, Child Support, Preexisting
Tort Creditors
Ohio- Divorce, Alimony, Child Support
South Dakota- Divorce, Alimony, Child Support, Preexisting Tort
Creditors --- only if debt at time of transfer
Tennessee- Divorce, Alimony, Child Support
Wyoming- Child Support, Property listed on application to obtain
credit – but only as to that lender
37
Key DAPT States –
Ease of Use
The leading DAPT states do not make it
difficult to take advantage of the DAPT
opportunity
It is prudent to have the settlor execute an
Affidavit of Solvency when making a transfer
to the DAPT
– Some of the DAPT states require a new Affidavit
of Solvency for every new transfer to the DAPT
38
Key Dynasty Trust States –
Ease of Use
Alaska- Affidavit required
Delaware- No affidavit required
Nevada- No affidavit required
New Hampshire- No affidavit required
Ohio- Affidavit required
South Dakota- No affidavit required
Tennessee- Affidavit required
Wyoming- Affidavit required
39
Key DAPT States –
Clear and Convincing Evidence
The leading DAPT states require the creditor
to prove a fraudulent transfer to the DAPT by
“clear and convincing evidence”
This is a high hurdle
40
Key Dynasty Trust States –
Clear and Convincing Evidence
Alaska- Clear and convincing
Delaware- Clear and convincing
Nevada- Clear and convincing
New Hampshire- Limited Clear and
convincing
Ohio- Clear and convincing
South Dakota- Clear and convincing
Tennessee- Clear and convincing
Wyoming- Clear and convincing
41
Overall DAPT State Rankings (as of July 2013)
Nevada- #1
South Dakota- #2
Ohio- #3 (tie)
Tennessee- #3 (tie)
Alaska- #5
Delaware- #6
Wyoming- #7
Rhode Island- #8 [This state not discussed today]
New Hampshire- #9
42
Links to State Annual State Rankings Charts
Annual Dynasty Trust State Rankings Chart
can always be accessed at
http://www.oshins.com/images/Dynasty_Trust
_Rankings.pdf
Annual Domestic Asset Protection Trust State
Rankings Chart can always be accessed at
http://www.oshins.com/images/DAPT_Rankin
gs.pdf
Steven J. Oshins, Esq., AEP (Distinguished) Eido M. Walny, Esq., AEP, EPLS
Law Offices of Oshins & Associates, LLC Walny Legal Group LLC
1645 Village Center Cir., Ste. 170 7670 N. Port Washington Road
Las Vegas, NV 89134 Fox Point, WI 53217
Phone: 702-341-6000 Phone: 414-751-7531
Fax: 702-341-6001 Fax: 414-247-9959
Website: www.oshins.com Website: www.walnylegal.com
Email: [email protected] Email: [email protected]
Thank You For Attending Today’s Seminar