Broker Check

Webinar Transcript: “Spousal Lifetime Access Trusts for Mass Affluent ($1-10M) taxpayers”

February 02, 2024

Webinar Transcript (2/1/2024): “Spousal Lifetime Access Trusts for Mass Affluent ($1-10M) taxpayers”

 Host: Jonathan I. Shenkman, President & Chief Investment Officer of ParkBridge Wealth Management (Contact: jonathan@parkbridgewealth.com)

Presenter: Martin M. Shenkman CPA, MBA, PFS, AEP, JD, Founder, Shenkman Law (Contact: Shenkman@ShenkmanLaw.com) 


00:00:09.000 --> 00:00:13.000

Good morning and welcome to the Park Bridge Wealth Management Winter Webinar Series.

 

00:00:13.000 --> 00:00:18.000

This program is entitled Spousal Lifetime Access Cross for Mass affluent one to 10 million dollar taxpayers.

 

00:00:18.000 --> 00:00:24.000

Those who don't know me, my name is Jonathan Shankman, I'm the President and Chief Investment Officer of Parkbridge Wealth Management.

 

00:00:24.000 --> 00:00:30.000

In that role I serve and if fiduciary capacity to help my clients achieve their financial objectives.

 

00:00:30.000 --> 00:00:45.000

The goal of my programs is to bring professionals together to help them better serve their clients. This is done by educating attendees on the latest topics in wealth planning and by encouraging collaboration between a client's attorney, CPA, and financial advisor where appropriate.

 

00:00:45.000 --> 00:00:52.000

My practice focuses on working with high net with families, businesses and not for profits. I manage individual investment portfolios, trust accounts.

 

00:00:52.000 --> 00:01:03.000

Corporate retirement plans and endowments, not my clients achieve their financial goals. In addition to the 20 or so events I run every year, I also do a fair amount of writing on the topics of investing and financial planning.

 

00:01:03.000 --> 00:01:14.000

You could read my work in a variety of periodicals including Barron, CNBC, Forbes, Kipplinger, the Wall Street Journal, the CPA Journal, and Trust in the States Magazine to name just a few.

 

00:01:14.000 --> 00:01:21.000

You can see all my work on my website at Parkbridge wealth.com forward slash articles or by following me on social media at Jonathan on money.

 

00:01:21.000 --> 00:01:31.000

Additionally, you could check out my weekly podcast, which is also called Jonathan on money, and you can listen that on Apple, Spotify, or wherever you get your podcasts.

 

00:01:31.000 --> 00:01:40.000

Before I introduce our speaker, please pay close attention if you are an attorney or CPA in Connecticut, New Jersey or New York and are taking this program for credit.

 

00:01:40.000 --> 00:01:42.000

I'll be giving a code during this program that you will need to write down. There will only be one code.

 

00:01:42.000 --> 00:01:51.000

It will be given at some point in the middle of the session, so I have a pen and paper ready.

 

00:01:51.000 --> 00:01:52.000

After the program, you'll receive an evaluation form where you will need to insert the code in order to receive credit.

 

00:01:52.000 --> 00:02:07.000

Please stick around until the end of the program for further instructions on receiving credit. And also note this program is 1 h long so it's a bit longer than my usual 30 min session.

 

00:02:07.000 --> 00:02:14.000

Today we're privileged to hear from Martin Shankman who has the distinction of being Mitati and is also an attorney in private practice based in New York.

 

00:02:14.000 --> 00:02:26.000

Mark concentrate on a state and tax planning. He's widely quoted expert on tax matters and is a regular source of numerous financial and business publications and as the author of 40 books and more than approximately 1,500 articles.

 

00:02:26.000 --> 00:02:33.000

He's active in many charitable causes. And with that introduction, I'll now turn the program over to Martin.

 

00:02:33.000 --> 00:02:43.000

Welcome everyone to the program. Spouse a lifetime access trust is. One of the hottest planning techniques for quite some time.

 

00:02:43.000 --> 00:02:52.000

And with the reduction of the exemption coming in 2026 at the end of 2025, with the exemptions going to be reduced by half.

 

00:02:52.000 --> 00:02:59.000

All advisors are gonna be inundated with clients seeking to safeguard some of that exemption before it's reduced.

 

00:02:59.000 --> 00:03:06.000

And obviously all this depends on what happens after the election and whether or not there's any change in the law.

 

00:03:06.000 --> 00:03:16.000

But that being said, Given the popularity of slats and I'm not going to spend a great deal of time talking about a lot of the structural slat issues.

 

00:03:16.000 --> 00:03:31.000

The the step transaction doctrine which doesn't get enough attention. And funding many slats. The reciprocal trust doctrine which gets an awful lot of attention and a lot of misinformation We're going to focus on a different concept.

 

00:03:31.000 --> 00:03:49.000

Slats while a phenomenal tool when done well to safeguard exemption. Or wealthier clients, maybe in the 10 to 50 million dollar and up range and up because slats can be the foundation stone, the building blocks for plans for 1 billion dollar clients.

 

00:03:49.000 --> 00:04:04.000

The same concepts. That are used in flats. Can be applied to much lower wealth clients. And I have found that many clients with lesser wealth can benefit significantly.

 

00:04:04.000 --> 00:04:16.000

From using this technique. And that's what we're going to talk about. The objective is that or the the premise of the program is that many of you may serve clients.

 

00:04:16.000 --> 00:04:24.000

Who have. 5 million dollars, 2 million dollars, 10 million dollars. Why even talk to them about this kind of planning?

 

00:04:24.000 --> 00:04:37.000

The concepts that work for 50 million dollar estates. Can with intelligence be applied very beneficially. For clients with 2 and 5 and 10 million dollar estates.

 

00:04:37.000 --> 00:04:40.000

So much lower wealth level clients. Who are not doing this to preserve exemption can still benefit from the same planning technique.

 

00:04:40.000 --> 00:04:51.000

And if you are using this technique for wealthier clients, there's no reason not to adapt it.

 

00:04:51.000 --> 00:04:57.000

And we'll talk specifically about how to make it. Or cost efficient and affordable for more moderate wealth clients.

 

00:04:57.000 --> 00:05:09.000

And, and it's almost like you can build a slat. For a lower wealth client and build in the the the mechanisms so the slack can grow if you will.

 

00:05:09.000 --> 00:05:23.000

And get more sophisticated as their wealth levels grow. So I'm, I'm gonna start with some basic stuff, but I'm gonna get into what I hope is interesting and practical applications of using this technique.

 

00:05:23.000 --> 00:05:27.000

And the focus is going to try to be on being practical. So what is the slat? I'm assuming everyone knows it, but let's just go through this.

 

00:05:27.000 --> 00:05:36.000

Quickly for some of those that don't. It stands for Spalal Lifetime Access Trust.

 

00:05:36.000 --> 00:05:40.000

And, and by the way, it doesn't have to be for slots. Spouses only.

 

00:05:40.000 --> 00:05:47.000

It can be non married partners. It can be siblings. It can be somebody who's single and has no close family with a close friend.

 

00:05:47.000 --> 00:06:01.000

It could be done for anybody. Although the most common application is between spouses and I'm gonna use husband and wife when I illustrate this simply because it gets too complicated to use spouse one in spouse 2.

 

00:06:01.000 --> 00:06:08.000

It's an irrevocable trust. Irrevocable. Used to mean that you couldn't change it.

 

00:06:08.000 --> 00:06:15.000

Then irrevocable meant, well. It's kind of you can't change it, but you can decant it or merge it into a new trust.

 

00:06:15.000 --> 00:06:24.000

You can use a non-judicial modification agreement, NJ, MA, we're under many state laws the various parties involved.

 

00:06:24.000 --> 00:06:49.000

Can agree to modify a trust Trust protect reactions can change it and so on. There is a recent CCA, Chief, counsel advice, from the IRS at the end of last year that argued that when somebody It was a decanting or non-judicial modification and it required the consent or agreement and even if it's the non-consent, non-objection of the

 

00:06:49.000 --> 00:06:59.000

beneficiaries. The IRS argued that there was a gift tax by the beneficiaries when a trust was modified to add back attacks, reimbursement clause.

 

00:06:59.000 --> 00:07:03.000

We're not gonna spend a lot of time on that new ruling if you're not familiar with it, it's worth reading.

 

00:07:03.000 --> 00:07:24.000

For advisors it's important to caution clients that if you later modify a trust based on the theories the Iris advocated in that ruling which I don't believe are correct and I think the concept of Calculating and imputing a gift to beneficiaries who have no control over a trust for adding a tax reimbursement clause doesn't make any sense.

 

00:07:24.000 --> 00:07:34.000

But the bottom line is when these irrevocable trusts are modified in the future, if they're modified, you have to be mindful of that CCA and the risk of.

 

00:07:34.000 --> 00:07:43.000

The IRS arguing for a negative tax result. But as the concept of a slat and I have them, I believe in it, I don't just talk about it.

 

00:07:43.000 --> 00:07:50.000

But I have a, spousal lifetime access trust I created for my wife. She has a trust that she created for me.

 

00:07:50.000 --> 00:07:59.000

The trust benefit each other and all descendants and their irrevocable trust. And they were done in part for asset protection planning.

 

00:07:59.000 --> 00:08:06.000

They were done in part because it's impossible to predict what might happen with the tax laws. In 2,012 we thought the exemption was going down to a million dollars.

 

00:08:06.000 --> 00:08:13.000

Which didn't happen. And there's no saying whether or not the 2026 reduction will or won't happen.

 

00:08:13.000 --> 00:08:22.000

But keep in mind and this is important and it's important and this is important and it's important for clients too and this is also why I think a lot about applying these techniques to and this is also why I think a lot about applying these techniques, and this is also why I think a lot about applying these techniques at lower wealth levels.

 

00:08:22.000 --> 00:08:36.000

There's no way to predict whether or not the kind of tax proposals that Senator Sanders and Elizabeth Warren and and Wyden and others have proposed which could knock an exception back to a million 2 million 3 million dollars.

 

00:08:36.000 --> 00:08:45.000

There is no way to predict. So the concept of a slat is if I create a trust for my wife and descendants and she creates a trust for me and descendants, we're still each a beneficiary of the other trust.

 

00:08:45.000 --> 00:08:58.000

So even if we put funds in there that we may later need access to. And key to this discussion and different from the discussion for much wealthier clients is clients in the mass affluent range.

 

00:08:58.000 --> 00:09:05.000

They're going to need access to this. So you have to be cautious and constructing it.

 

00:09:05.000 --> 00:09:17.000

But so long as they have access. There's no reason they can't pursue the planning. So the idea for wealthy clients is you're putting money out of their estate but preserving access by using the slap mechanism.

 

00:09:17.000 --> 00:09:23.000

For lower wealth clients, it may not be so much to put it out of the estate from an estate tax perspective.

 

00:09:23.000 --> 00:09:38.000

But from an asset protection or other planning perspective we're going to talk about. So what I want to do to set the stage and I know you're all probably familiar with this, I want to explain very quickly the application of slats for your wealthier clients, which I'm assuming you all know.

 

00:09:38.000 --> 00:09:46.000

But then contrast that with how you would apply. The slat techniques, the same techniques, the same concepts.

 

00:09:46.000 --> 00:09:57.000

Who much lower wealth client. So again. For the wealthier client, not our target topic today, but I want to use this to contrast what we're going to talk about.

 

00:09:57.000 --> 00:10:04.000

Let's say a couple has 40 million dollars. And in 2026 the exemptions are cut in half here.

 

00:10:04.000 --> 00:10:10.000

I said 6 million, but I wrote that slide probably before inflation got so high it's going to be over 7 million.

 

00:10:10.000 --> 00:10:15.000

Again, assuming no changes, which. We don't know and that's why planning is important.

 

00:10:15.000 --> 00:10:30.000

The couple had done nothing. Their 40 million dollar state would be reduced by their exemptions 6 million each 7 million each whatever it is in 2026 or later and then the balance would be taxed at 40% leaving a very substantial estate tax.

 

00:10:30.000 --> 00:10:45.000

Now. If they created slats and they put money into them and the exemption now is $13,610,000 so a couple could put away what 27 and change 1 million it's an awful lot of money and for many couples they can't afford that you may just use one exemption to preserve it.

 

00:10:45.000 --> 00:10:58.000

But by putting money into these slats, they can still have access within reason and with certain limitations, which we'll briefly talk about.

 

00:10:58.000 --> 00:11:11.000

But it's now growing out of their estate. So using these examples, there can be a very substantial tax saving for a couple worth, 40 million dollars acting before 2026.

 

00:11:11.000 --> 00:11:22.000

So the key question is how can this powerful planning technique as slats? Be applied and used. For clients with a net worth and one to 10 million dollars.

 

00:11:22.000 --> 00:11:29.000

Too many advisors and clients ignore all of this because gee I'm not going to pay an estate tax that doesn't mean planning.

 

00:11:29.000 --> 00:11:35.000

Is not. Valuable for them.

 

00:11:35.000 --> 00:11:43.000

So let's let's go on. So how do I, how do we adapt? The SLAT technique.

 

00:11:43.000 --> 00:11:50.000

Husband creates a trust for wife and descendants. Wife creates a trust for husbands. And again, the trust obviously have to be differentiated to avoid the reciprocal trust.

 

00:11:50.000 --> 00:11:56.000

Dct and regardless of wealth level. And that can be done with different powers of appointments, different.

 

00:11:56.000 --> 00:12:08.000

Annual demand powers crummy powers of 5 and 5 power one trust not the other trust different trustees different jurisdictions although you probably won't do that with the lower wealth clients, different distribution provisions.

 

00:12:08.000 --> 00:12:16.000

One spouse may be. One spouse may be limited to a hem standard health education maintenance support.

 

00:12:16.000 --> 00:12:29.000

Now spouse may have an unlimited discretionary distribution standard with an independent trustee and so on. So lots of ways to differentiate that and I'm sure you've all heard lots of webinars.

 

00:12:29.000 --> 00:12:35.000

On the reciprocal trust doctrine and how to address it. If you haven't anyone information, I can give Jonathan an article to give you on the reciprocal trust doctor.

 

00:12:35.000 --> 00:12:45.000

Just let Jonathan know and I'll send him something he can distribute. So let's take an example now.

 

00:12:45.000 --> 00:12:51.000

Of trying to adapt this planning technique for moderate wealth clients. And I made up an example, we'll just go through it.

 

00:12:51.000 --> 00:13:01.000

Jane and John Smith, the both physicians, they're worried about malpractice claims. It's not only about Preserving exemption.

 

00:13:01.000 --> 00:13:11.000

These this couple both as doctors are very concerned. About practice claims. It's very common and this is not just physicians that are worried about malpractice claims.

 

00:13:11.000 --> 00:13:24.000

Everyone on this call needs to be worried about malpractice claims. The the malpractice environment for lawyers accountants for the estate planning subspecialty in particular is is gotten dramatically worse over the years.

 

00:13:24.000 --> 00:13:32.000

This statistics prove that out. The the big profile, high profile cases prove it out. Lots of clients need to ask the protection.

 

00:13:32.000 --> 00:13:40.000

They are in their early forties. That to me means they're going to need access to this money because they don't know what the future is going to bring.

 

00:13:40.000 --> 00:13:46.000

They have a couple of young children and they have several 1 million dollars in non-retirement savings that they've accumulated.

 

00:13:46.000 --> 00:13:53.000

You can't put retirement savings, as you all know, into slats or any kind of these planting vehicles.

 

00:13:53.000 --> 00:14:00.000

They're very concerned about malpractice risk. They're confident their estate will grow in the coming decades as their professional careers grow mature.

 

00:14:00.000 --> 00:14:09.000

Their high earning highest earning years are way, way ahead of them yet. They don't have adequate life insurance. Common with lots of clients.

 

00:14:09.000 --> 00:14:21.000

They don't have adequate life insurance. To protect themselves or the children. The term life insurance they have as with most younger clients is just don't personally because no one told them it should be in a trust.

 

00:14:21.000 --> 00:14:24.000

They have really no concerns about estate tax. But they do understand that the laws can change every time there's a change of.

 

00:14:24.000 --> 00:14:36.000

Administration in Washington. And they're not adverse to doing tax planning, although it's certainly not a motivator.

 

00:14:36.000 --> 00:14:42.000

Jane's mother is in her nineties and not doing so well and they help her out financially.

 

00:14:42.000 --> 00:14:51.000

Very, very common. Tens of millions of children. Help out their aging parents. That's a wonderful thing for children to do.

 

00:14:51.000 --> 00:14:57.000

Help out their aging parents financially. So here's here's what we could do with this couple.

 

00:14:57.000 --> 00:15:03.000

Let's say we create 2 non reciprocal spouse, a lifetime access trust chain, creates one for John.

 

00:15:03.000 --> 00:15:17.000

John creates one for Jane and I rattled off a couple of minutes ago. Some of the different concepts you can integrate differently in one trust not the other so that you make them different for purposes of the reciprocal trust doctrine.

 

00:15:17.000 --> 00:15:28.000

In this instance, you can't really differentiate the trusts. Based on assets because it's not like one has a very valuable closely all business and the other has.

 

00:15:28.000 --> 00:15:40.000

Marketable securities. You may be able to the client let's say for simplicity sake the client has a 50 50 asset allocation half in bonds half in stocks just simplistic.

 

00:15:40.000 --> 00:15:48.000

Maybe what they do is they divide those assets so that husband owns the bonds, wife owns the stocks and they're putting different assets into the trust.

 

00:15:48.000 --> 00:15:52.000

I'm not sure how much that'll help, but it can't hurt if you can do it.

 

00:15:52.000 --> 00:16:04.000

If one of them, if they have a rental property, maybe one of them will use that. Keep in mind and I'm not going to focus on it, but I said it earlier, the step transaction doctrine, which I'll explain, is an issue for all.

 

00:16:04.000 --> 00:16:10.000

Hey, revivable trust and slap planning. Step transaction is where the IRS collapses several steps.

 

00:16:10.000 --> 00:16:17.000

I think it was 2020, late December, 2,000, and 20, the small Dino case was a court case where the taxpayer got trounced on the step transaction.

 

00:16:17.000 --> 00:16:25.000

Doctrine. You can't take assets and retitle them from one spouse to the other.

 

00:16:25.000 --> 00:16:33.000

On Monday and then on Tuesday have let's say the husband put the assets that were just retitled to his name from the wife into a trust for wife and descendants.

 

00:16:33.000 --> 00:16:39.000

There should be at least 6 months, ideally, some say, you know, in a pinch 30 days.

 

00:16:39.000 --> 00:16:47.000

Ideally, there should be actions by the spouse who gets the assets to show that they have dominion and control over them.

 

00:16:47.000 --> 00:16:59.000

Changing the asset allocation. Using some of the money for personal expenses, you got to be mindful of that. But let's, let's leave that and go on.

 

00:16:59.000 --> 00:17:02.000

So under your guidance, John and Jane, each create 2 non-reciprocal spouse a lifetime access trust.

 

00:17:02.000 --> 00:17:13.000

Now, my preference for slats for wealthier clients and I encourage you to think about it but it's not our topic today is to put them always in trust friendly jurisdictions.

 

00:17:13.000 --> 00:17:20.000

There's now, I believe, 20 states that permit. Domestic acid protection trusts.

 

00:17:20.000 --> 00:17:32.000

And have laws favorable to self-settled trust. That's important because if under the reciprocal trust doctrine, the uncross the slats, that's what the reciprocal trust doctrine, if successfully used would do.

 

00:17:32.000 --> 00:17:45.000

Uncrossed slat means husband created the trust that he's the beneficiary of. If you're in a jurisdiction like Alaskan, Nevada, South Dakota, Delaware, any of the DAP jurisdictions, Michigan, Ohio.

 

00:17:45.000 --> 00:17:52.000

New Hampshire, etc. You can now have a self-settle trust. So using a DAP jurisdiction can be a backstop to prevent a successful IRS.

 

00:17:52.000 --> 00:18:06.000

Attack or creditor attack on the reciprocal trust doctrine. But for moderate wealth clients, you're going to probably create them in their home state, New York.

 

00:18:06.000 --> 00:18:14.000

Not ideal by any stretch, but from a practical perspective. The fees that are gonna be charged by an administrative trustee in one of the better jurisdictions may be an impediment for a lower wealth client.

 

00:18:14.000 --> 00:18:30.000

Maybe not. So you should ask the client the question. In the maybe not is because if they're really concerned about asset protection, why not start the trust in a better jurisdiction and avoid that link back?

 

00:18:30.000 --> 00:18:40.000

To the home state. Because there's significant worries over malpractice risks in the next few years as their incomes grow, Jane's trust will be moved to Nevada and John's to Alaska.

 

00:18:40.000 --> 00:18:59.000

So you can start them in New York and is the clients wealth. Rows and income grows and they're more tolerant of the 3 to 5 grand 3 to 10 grand depending on which trust company which jurisdiction but you can get an administrative trustee in one of the favorable states for as little as 3 3 to 5 grand a year.

 

00:18:59.000 --> 00:19:07.000

Well, once their income and wealth goes, you can have a trust protector just move, Change Trustees to better jurisdiction.

 

00:19:07.000 --> 00:19:15.000

They name their uncle as trust protector and give him the power. To move each trust to new state change governing law and change new trustees.

 

00:19:15.000 --> 00:19:23.000

So all it takes is a trust protector with those very commonly given powers to be able to enhance the level of protection the SLAT offers.

 

00:19:23.000 --> 00:19:25.000

So you could start in New York or whatever the client or your home the clients home state is initially and then move it.

 

00:19:25.000 --> 00:19:46.000

If the client is comfortable at their wealth and income level, start in a better jurisdiction. Since the primary goal of the Smith is to have sufficient assets in retirement, They're building into the you want to build into the trust many ways where they can access money So you could have a loan provision.

 

00:19:46.000 --> 00:19:53.000

You could have a tax reimbursement clause. You can have the ability to add turtle book beneficiaries.

 

00:19:53.000 --> 00:20:13.000

Well, how does adding charitable beneficiaries give them personal benefit because let's assume most clients give something to charity if the trust pays it instead of them paying it that's in effect an indirect benefit they can't have the trust pay a pledge they made but the trust can make a donation if charities are built in and you want to build them in from the beginning otherwise when the trust.

 

00:20:13.000 --> 00:20:18.000

Is ever turned into a non-granter trust you won't get a deduction because you'll violate the governing instrument rules.

 

00:20:18.000 --> 00:20:26.000

Now, you want to go further than just the loan and tax reimbursement and husband's beneficiary wife, wife of husband, etc.

 

00:20:26.000 --> 00:20:34.000

You could build in a hybrid DAPP provision and say the husband's trust. Hibrid domestic acid protection trust provision.

 

00:20:34.000 --> 00:20:46.000

What that is, is that you give somebody in a non fiduciary capacity. The power to add back beneficiaries, which can include the husband.

 

00:20:46.000 --> 00:21:01.000

Some people like to say that they give a class of beneficiaries like the descendants of the husband's grandparents so that it's a whole class of people they can choose somebody they had back but the husband's included in the class Some think that's safer.

 

00:21:01.000 --> 00:21:05.000

I'm not sure because it's obvious why that's being done, but you may make that.

 

00:21:05.000 --> 00:21:12.000

So in the husband's trust, we're going to give an old college friend the ability to add husband back as a beneficiary.

 

00:21:12.000 --> 00:21:22.000

Because we want to keep these trust different for purposes of the reciprocal trust doctrine because it's a lower wealth client that likely is going to have to access the money.

 

00:21:22.000 --> 00:21:33.000

Then what you may want to do is give the wife a different power to give her access. And for that, maybe the wife's trust has a spat provision, special power of appointment trust.

 

00:21:33.000 --> 00:21:43.000

We give somebody and I'd want that somebody ideally to be not the same somebody who has the DAP, Hybrid Dap power to add the husband back, give a different person.

 

00:21:43.000 --> 00:21:50.000

Say the wife's college roommate. The ability in a non fiduciary capacity.

 

00:21:50.000 --> 00:22:02.000

To tell the trustee. Give wife. X dollars. It's a limited power of appointment, which we've used in planning.

 

00:22:02.000 --> 00:22:16.000

Forever and it's exercisable where the person can appoint and again you can make it a class of beneficiary, descendants of the wife's grandmother, you could have any of those descendants, this person in a non-fiduciary capacity could direct the appointment.

 

00:22:16.000 --> 00:22:24.000

What's different about a spat is the wife is never a beneficiary. Can't be a beneficiary.

 

00:22:24.000 --> 00:22:28.000

Can't be a beneficiary of the trust in contrast to. Can't be a beneficiary of the trust in contrast to the DAP provision in the husband's trust.

 

00:22:28.000 --> 00:22:37.000

But now in contrast to the DAPP provision in the husband's trust, but now in each trust, in addition to the typical powers of being a beneficiary, being able to make a loan, tax reimbursement, give one spouse not the other a 5 and 5 power where they can withdraw.

 

00:22:37.000 --> 00:22:44.000

To 5% of the principal, give one a spat provision, give one a hybrid DAV provision.

 

00:22:44.000 --> 00:22:58.000

I really prefer that if you're gonna give a spat and a hybrid adapter in the trust friendly DAP type jurisdictions, one of those 20 states and I think Wisconsin is gonna join I heard from a colleague so maybe 21 I think soon.

 

00:22:58.000 --> 00:23:13.000

The ability to get those access points. Just safer. If you use the spat and hybrid DAPP, maybe they can't be activated unless and until the trust is moved by the trust protector.

 

00:23:13.000 --> 00:23:22.000

To one of those better jurisdictions. So now we've created a trust. It's arguably out of their estate and unreachable by their creditors.

 

00:23:22.000 --> 00:23:32.000

And that trust gives them incredible access to it because they're at a much lower well strata. So this trust is already making a lot of sense from an asset protection.

 

00:23:32.000 --> 00:23:43.000

Perspective, it's a great way to save. Money is protected. Arguably. And we've not talked about estate tax as being a significant motivator.

 

00:23:43.000 --> 00:23:49.000

Let's go on. James Mom I mentioned was in her 90, s not doing well and they've been helping her.

 

00:23:49.000 --> 00:23:53.000

Not an uncommon thing with lots of younger clients helping an older parent.

 

00:23:53.000 --> 00:24:01.000

We give Jane's mother a general power of appointment over each trust. Her passing those assets are included in her estate.

 

00:24:01.000 --> 00:24:12.000

And we'll get a step up in basis. So all of the appreciation. That Jane and John have realized in the years that they've been investing with Jonathan Shankman, right?

 

00:24:12.000 --> 00:24:25.000

Because that's who you want to hire for your investments. All that appreciation from a tax perspective is disappeared because you get a step up and basis when Jane's mom dies because of the power of appointment.

 

00:24:25.000 --> 00:24:40.000

So think of the income tax planning benefits. That that can afford. Merely by giving Jane's mother a general power of appointment and you can circumscribe it it can be limited up to no more than including assets up to our exemption amount.

 

00:24:40.000 --> 00:24:48.000

But at this wealth strata, it's less of a worry of exceeding the exemption than for the wealthier clients who try to use that planning tool.

 

00:24:48.000 --> 00:24:59.000

You could say it has to be exercised with the consent of Jane's lawyer. So that the mother can't just arbitrarily do it and name some other family member.

 

00:24:59.000 --> 00:25:05.000

But for the right circumstances, that power of appointment can eliminate all the capital gains on Jane and John's portfolio.

 

00:25:05.000 --> 00:25:13.000

That's big. That's a great income tax benefit. On top of the acid protection.

 

00:25:13.000 --> 00:25:20.000

Sorry about that. You can have financial planning forecast done to show them what the numbers look like.

 

00:25:20.000 --> 00:25:35.000

You can have an insurance and you should have an insurance analysis. Done to support the plan. If Jane dies prematurely and John loses some of his access to the funds in Jane's trust having life insurance on Jane and her trust to supplement what John can get.

 

00:25:35.000 --> 00:25:41.000

Help make them whole. So insurance is especially at a younger age like this that we're illustrating in the lower wealth.

 

00:25:41.000 --> 00:25:48.000

Definitely needs to be looked at. I like to name a separate insurance trustee. In all the slats that I do.

 

00:25:48.000 --> 00:25:59.000

I've done that for many years. This way if the client wants to be an investment trustee or investment advisor because they have private equity, whether it's a rental house or startup company or whatever that they put in there.

 

00:25:59.000 --> 00:26:12.000

You want the separate insurance trustees so you don't have a code section, 2042, a state inclusion issue with the client that's the insured being a trustee.

 

00:26:12.000 --> 00:26:23.000

And I just like that independent so you can easily build in separate insurance provisions. Now, in the bottom of the slide, 11, I just indicate say Jane puts in a half a million John puts in 650 and you want some financial modeling to show and they're probably living off their income.

 

00:26:23.000 --> 00:26:29.000

So the financial modeling. For many clients we use to demonstrate that they still have adequate resources to live on.

 

00:26:29.000 --> 00:26:45.000

Here that may be a really simple step because they're living unless hopefully than what they're earning because they're saving and adding to retirement savings and savings for college and so on and so forth.

 

00:26:45.000 --> 00:26:54.000

So you can start with small dollar gifts of the amounts here and it's a great asset protection tool and in each year in the future they can make another gift.

 

00:26:54.000 --> 00:26:56.000

So now Jane and John have a valuable asset protection plan that will grow with them as their wealth grows and you can enhance it through decanting.

 

00:26:56.000 --> 00:27:07.000

Keep in mind the recent CCA moving it to a better jurisdiction if you start in their home state to keep the cost cheaper.

 

00:27:07.000 --> 00:27:13.000

A lot of times for the lower wealth clients, I'll name a family member. I don't like naming spouses, although some lawyers do that all the time.

 

00:27:13.000 --> 00:27:25.000

I just prefer an independent trustee, a sibling, a cousin, close friend, whatever. But you can start in the home state and when they their wealth affords it, move it to the better jurisdiction and name the institution.

 

00:27:25.000 --> 00:27:29.000

If they're comfortable doing it from the get-go, I prefer to do that. They need insurance trust.

 

00:27:29.000 --> 00:27:38.000

Well, you don't need to add. Let me finish the thought before you give the code. You don't need to have a separate life insurance trust.

 

00:27:38.000 --> 00:27:46.000

You build in all the insurance provisions in the slat. So a younger couple often will go out and get insurance trust.

 

00:27:46.000 --> 00:27:53.000

This is a better approach. It's just more sophisticated, more robust, has more access and better acid protection planning.

 

00:27:53.000 --> 00:27:58.000

So you're not even giving them an extra trust. You're just giving them a better trust.

 

00:27:58.000 --> 00:28:01.000

They were gonna set up 5 29 plants. They may not have to do it because the kids are beneficiaries of the trust.

 

00:28:01.000 --> 00:28:10.000

They can grow the money out of their estate safe. And pay for college out of these trusts because the kids are beneficiaries.

 

00:28:10.000 --> 00:28:18.000

You may still want the 529 plan because the income tax advantages. But again, if they want to not do that, they don't have to.

 

00:28:18.000 --> 00:28:23.000

The income tax planning on Jane's mom's passing of the step up and basis, another great benefit.

 

00:28:23.000 --> 00:28:32.000

So they got acid protection. They got an insurance trust. They got, estate tax savings if the laws ever changed.

 

00:28:32.000 --> 00:28:41.000

They have great access, so it becomes like a retirement plan. This is a really beneficial plan. This couple if it can be done cost effectively.

 

00:28:41.000 --> 00:28:42.000

Jonathan.

 

00:28:42.000 --> 00:28:45.000

I'm just gonna interject here briefly with the code for accounts and attorneys. We're taking this program for credit.

 

00:28:45.000 --> 00:28:56.000

Please write this down. The code is A 1 0, again, A as an apple, the number one and the number 0.

 

00:28:56.000 --> 00:29:02.000

One final time, A, 1, 0.

 

00:29:02.000 --> 00:29:05.000

Okay.

 

00:29:05.000 --> 00:29:17.000

What are slats, arm will remain the estate planning tool a choice for wealthy clients? They're going to remain the hot type ticket because with what's happening in 2026.

 

00:29:17.000 --> 00:29:27.000

Many many moderate wealth and wealthy clients want to safeguard their exemption. We didn't really talk about GST planning, but all these trust should be GST exempt.

 

00:29:27.000 --> 00:29:32.000

GIFTS returns should be filed. Confirming that they're all GST trusts.

 

00:29:32.000 --> 00:29:47.000

They should be drafted as GST Trust. GST trust is a defined term. Under the GST regs that we're not going to get into, but the bottom line is that would make the automatic allocation rules apply and automatically allocate GST exemption.

 

00:29:47.000 --> 00:29:52.000

On the gift tax return and I see them done wrong far more than wrong often than I seem done right.

 

00:29:52.000 --> 00:30:08.000

It's not complicated. We believe this is a GST. Exam trust. An allocation is fully allocate a GST exemption is fully allocated so that the inclusion ratio 0 if for any reason this is not deemed to be a GST trust, we hereby allocate.

 

00:30:08.000 --> 00:30:17.000

As much GST exemption as necessary to make this a fully exempt 0 inclusion trust. Even for the moderate wealth clients do that.

 

00:30:17.000 --> 00:30:21.000

You don't know that their wealth may not grow. We don't know that the exemption may not be reduced.

 

00:30:21.000 --> 00:30:33.000

You don't want an ambiguity. It really is simple to do and not a big deal. If after the fact it wasn't done right, it is a big deal to try to fix it.

 

00:30:33.000 --> 00:30:39.000

Slats are the tool of choice for wealthy married couples and many single people who do slats with siblings and others.

 

00:30:39.000 --> 00:30:47.000

Because each spouse can contribute assets to the trust. They can remove assets from their taxable state. Secure the temporary bonus exemption.

 

00:30:47.000 --> 00:31:02.000

Keep in mind on that point, sometimes advisors even misunderstand about clients almost always misunderstand it. If you have a couple with 40 million dollars and one spouse puts in 6 million and the other spouse puts in 6 million and they create 2 non reciprocal slats.

 

00:31:02.000 --> 00:31:05.000

They haven't safeguarded a nickel of exemption. Because when the exemptions reduced to 7 million, they now each have 1 million left.

 

00:31:05.000 --> 00:31:20.000

If instead one spouse put in 12 million, the other put in nothing. Or maybe, you know, 50 grand to fund like a life insurance trust that was structured as a more robust slat.

 

00:31:20.000 --> 00:31:25.000

They've now safeguarded 12 million. If the exemption drops to 7, they've safeguarded 5 million they would have lost and the other spouse still has first 7 million of exemption.

 

00:31:25.000 --> 00:31:38.000

So he keeps that in mind because for a lot of moderate wealth, moderate relative to the huge exemptions, you're better off with just one spouse using exemption.

 

00:31:38.000 --> 00:31:51.000

Each spouse is a beneficiary the other trust so they can have access to the assets we've talked about loan provisions, alone provision is where somebody in a non fiduciary capacity has to be a nonfit should be a non fiduciary capacity.

 

00:31:51.000 --> 00:31:56.000

It's given a power to loan the settler, let's say the husband for his trust, money out of the trust.

 

00:31:56.000 --> 00:32:05.000

That way if wife dies and he loses indirect access to the trust through the wife as a beneficiary, this person and non foriduciary capacity.

 

00:32:05.000 --> 00:32:15.000

Could loan him money. So loan provisions are important. Tax reimbursement is critical and again based on that CCA that I told you about a few minutes ago.

 

00:32:15.000 --> 00:32:19.000

You gotta have that in from inception. Otherwise the ours may give you a hard time adding it.

 

00:32:19.000 --> 00:32:27.000

But taxes is a grand or trust. All these Most. Let me correct myself. Mostly slats are structured as granter trust.

 

00:32:27.000 --> 00:32:33.000

In some instances, we structure them as non-granter trust, which is a little sticky to do, but it can be done.

 

00:32:33.000 --> 00:32:40.000

You have a non-adverse party approved distributions to the spouse. The reason that you would structured as a non-granter trust is to avoid state income tax if you live in a high state.

 

00:32:40.000 --> 00:32:59.000

Tax state like New York, New Jersey, Pennsylvania, Connecticut. On the other hand, the reason the vast majority are done is granter trust is you don't want income tax issues when you're dealing with the trust, especially if there's insurance there or you want to swap assets for a basis, step up and so on.

 

00:32:59.000 --> 00:33:04.000

And if this is done well, and I'm gonna give you a comment or 2 here.

 

00:33:04.000 --> 00:33:15.000

It should protect the assets from creditors. In the prior example where we did John and Jane and they're both physicians, but honestly for any client and this is important to protect you as a practitioner.

 

00:33:15.000 --> 00:33:24.000

I like to get the financial advisor to review insurance coverage to a financial projection. Because it shows they have adequate resources outside of the trust.

 

00:33:24.000 --> 00:33:32.000

And often if there's an issue, insurance can fill that gap, especially for younger couples or couples putting in a large swath of their wealth.

 

00:33:32.000 --> 00:33:40.000

I like to have everybody sign a solvency affidavit that does any large trust transfer. Why? Because it's showing that they're not aware of any claims.

 

00:33:40.000 --> 00:33:41.000

So if somehow a claim surfaces, they sign something under the penalties of perjury before the transfer confirming.

 

00:33:41.000 --> 00:33:54.000

That they weren't aware of any claims and that they had adequate resources to meet their lifestyle expenses and so on and so forth in a solvency alphabet.

 

00:33:54.000 --> 00:34:04.000

It also protects you as a practitioner because if the client later has misgivings or had a claim that they didn't tell you about, you didn't participate in defrauding that creditor.

 

00:34:04.000 --> 00:34:15.000

So that's something worth doing. So if we're going to try to get this plan to protect the couple from claimants, you want to get some financial backup.

 

00:34:15.000 --> 00:34:22.000

I always try to get a sign balance sheet because if you have a balance sheet it shows that they still have adequate resources and so on.

 

00:34:22.000 --> 00:34:23.000

That's just a simplistic slap pitch, but it's not the full story of the correct plan.

 

00:34:23.000 --> 00:34:39.000

There's lots of details that need to really go into. The properly done slap So let's talk about in the context of the lower wealth client.

 

00:34:39.000 --> 00:34:48.000

Estate tax uncertainty and growth of the estate. One of the issues that is often not looked at in my financial forecasts can really be helpful.

 

00:34:48.000 --> 00:34:58.000

Oh high is there a steak gonna grow? If somebody earns 6% compounded for the next 30 years, whatever they're having and whatever they're adding in savings.

 

00:34:58.000 --> 00:35:00.000

Can really grow dramatically. Many clients only look at their current like a snapshot of their balance sheet.

 

00:35:00.000 --> 00:35:12.000

They're not looking at what their estate may grow to. So it's really vital. To forecast what their estate could grow to.

 

00:35:12.000 --> 00:35:19.000

If they don't feel they need to do planning. Many clients who are very moderate in wealth today.

 

00:35:19.000 --> 00:35:28.000

May well have tactical estates in the future. Why not start planning now? So, the certainly can be something that could be beneficial.

 

00:35:28.000 --> 00:35:36.000

I mentioned very briefly that some but not most slats are done as non granter trusts. That's worth thinking about.

 

00:35:36.000 --> 00:35:44.000

And non-granter trust is also called a complex trust. A non-granter trust.

 

00:35:44.000 --> 00:35:55.000

Generally speaking, but I'm going to Modify this in a second pays its own income tax in contrast to a grant or trust where if you have a swap power or loan provision.

 

00:35:55.000 --> 00:36:04.000

That makes it. A granter trust is to you the settler. You report the income of the trust on your personal return.

 

00:36:04.000 --> 00:36:11.000

For wealthy clients, having a granter trust has been a huge part of planning for many decades because of the tax burn.

 

00:36:11.000 --> 00:36:20.000

If you set up a trust that's grand tours to you and you pay the income tax on all the income the trust earns, it helps the trust compound and grow out of your state even faster.

 

00:36:20.000 --> 00:36:29.000

And when the Iris ruled that That's not deemed an additional gift to the trust. The floodgates opened and that became the default approach to planning.

 

00:36:29.000 --> 00:36:37.000

But if somebody's in a high-tech state, they can structure the trust as a non-granter trust and avoid state income tax.

 

00:36:37.000 --> 00:36:43.000

So you could set up if you have a client in New York, a trust in Nevada, make it a non-granter trust.

 

00:36:43.000 --> 00:37:02.000

And then avoid any New York income tax. One of the little nuances there, New York, New Jersey, Pennsylvania, a couple other states have these really aggressive if that's the right word rules, but strong rules that if you have a dollar of source income, all the income of the trust is tainted.

 

00:37:02.000 --> 00:37:14.000

One of the ways, by the way, and I don't think this is in the slides that you can address that that little peppercorn of income that contained the trust give somebody a section 678 power to pull out all New York source income.

 

00:37:14.000 --> 00:37:19.000

So let one of the kids that let's say is an adult have them have the power to pull out all New York source income.

 

00:37:19.000 --> 00:37:33.000

So if somehow there's like a partnership fund or some kind of investment fund that has a modest amount of New York source income you don't get tagged the client doesn't get tagged with the whole trust being taxed in New York.

 

00:37:33.000 --> 00:37:41.000

The One of the problems of using the non-granter trust. Approach is it makes access harder.

 

00:37:41.000 --> 00:37:49.000

I'd said it earlier what you need if the spouse is going to be a beneficiary of a trust that automatically makes it a grant or trust.

 

00:37:49.000 --> 00:37:54.000

If you're trying to do a non-granter trust to save state income tax in this planning.

 

00:37:54.000 --> 00:38:01.000

The spouse can only get a distribution if approved by an adverse party. Who's an adverse party?

 

00:38:01.000 --> 00:38:10.000

Well, one of the kids that's a remainder beneficiary or current beneficiary is an adverse party because every dollar given to mom is a dollar less the kid gets.

 

00:38:10.000 --> 00:38:17.000

That gets a little more complicated. What technically is an adverse party? What if the children are all minors?

 

00:38:17.000 --> 00:38:24.000

Well, there have been rulings that have suggested in the ink intentionally non-granted trust area and the Irish doesn't issue rulings in that area anymore.

 

00:38:24.000 --> 00:38:35.000

That you can have somebody act on behalf of the child. You can name say a grandparent. To be the person to act on behalf of the child until they're no longer a minor.

 

00:38:35.000 --> 00:38:38.000

But you start to get a little gray in the area there of whether or not that will suffice to be a non granted trust.

 

00:38:38.000 --> 00:38:51.000

The real issue with a non-granter trust and why I have not used it for the wealth strata that we're talking about here is access is harder.

 

00:38:51.000 --> 00:39:05.000

If my spouse can only my wife can only get distributions if one of the kids approves it It makes it harder to get her money and a lot of clients are uncomfortable with that, especially at a more moderate wealth level where they feel they may need access.

 

00:39:05.000 --> 00:39:12.000

I said a minute ago alone power. Will taint to trust or characterize the trust as grand tour.

 

00:39:12.000 --> 00:39:20.000

So if I set up a slat for my wife and I have the power to bar, I'd give somebody the power to loan me money.

 

00:39:20.000 --> 00:39:26.000

That power will taint it as a granter trust. But the loan power is a very powerful way.

 

00:39:26.000 --> 00:39:31.000

To be able to get access to the trust, the power to add beneficiaries like the hybrid DAP technique we talked about.

 

00:39:31.000 --> 00:39:51.000

That will taint it as a grant or trust. So I put in the slide deck and wanted to talk about non-granter trust because maybe clients the higher wealth levels and and that's all relative right are more concerned with saving current state income tax but they're gonna have to forego some very important access points.

 

00:39:51.000 --> 00:39:57.000

That trust. And here's something I've never said in a lecture before because I just thought of it and it's only just happened.

 

00:39:57.000 --> 00:40:14.000

The CCA the IRS issued at the end of, of, 2,023 that said if you add a tax reimbursement clause you you have an adverse tax consequence, that if you add a tax reimbursement clause, you you have an adverse tax consequence that same construct and they intentionally did this just to put a chilling effect on the planning we do.

 

00:40:14.000 --> 00:40:22.000

That same construct may apply if you add a loan provision if you added any kind of access. So be mindful of that.

 

00:40:22.000 --> 00:40:28.000

So the non-granted trust approach, it's good to know about, it's good to mention to clients, but I think at this wealth level.

 

00:40:28.000 --> 00:40:33.000

The income tax benefit is not going to be. Is valuable. Next benefit to talk about.

 

00:40:33.000 --> 00:40:39.000

We've talked about this several times, but I'm just trying to go through all the benefits.

 

00:40:39.000 --> 00:41:03.000

Asset protection is important. Everybody in the the lidgas society we live in is at risk all of you on this call are for at risk And even if you think the slats that you do for your wealthy clients aren't necessary for you, they are because putting as much of your non-retirement non-qualified plan assets into a trust that you can to protect it from claimants and creditors is just simply

 

00:41:03.000 --> 00:41:14.000

prudent to do. And the older you get in your career, the closer you get to retirement, the more risk adverse you probably should feel because you don't have the decades to rebuild that wealth if it's ever lost.

 

00:41:14.000 --> 00:41:28.000

And I think an awful lot of clients want to ask their protection. And if you talk to them about it, they are aware of it because they buy liability milk, you know, umbrella, access personal liability coverage, they use LLCs when they have a business or rental property.

 

00:41:28.000 --> 00:41:47.000

They understand the need for asset protection. And clients in the 2 to 10 million wealth strata the one to 10 whatever range it is the lower wealth clients they need asset protection they just can't afford to give it away but using creative non reciprocal spouse a lifetime access trust with loan provisions, tax reimbursement provisions, a 5 and 5 power.

 

00:41:47.000 --> 00:41:48.000

Again, it's got to be different between the various trusts is an excellent way to help them protect assets.

 

00:41:48.000 --> 00:42:05.000

Non-retirement assets and yet still have access. Protecting aging and infirm clients. I wouldn't use, you don't need an irrevocable trust to do it, but a trust can help.

 

00:42:05.000 --> 00:42:27.000

How so? Elder Financial Abuse. Is epidemic in our country and it's not just elder it really bothers me that that's the phrase used because there's many people at younger ages that have cognitive issues, disabilities, challenges, and there are vultures out there, armies of them, that do anything to take advantage of anybody who has a weakness.

 

00:42:27.000 --> 00:42:39.000

Identity theft is just ramp it. So How does this slap plan help? You're putting, I always get separate tax ID numbers even for grant or trust.

 

00:42:39.000 --> 00:42:50.000

So if you're putting assets in a different tax ID number. I think it made it harder. For the perpetrators out there the bad actors to pierce a get at it because it's not a social that's so used.

 

00:42:50.000 --> 00:42:56.000

Who's gonna even have access other than maybe the accountant and the wealth of advisor to know what that tax ID number is.

 

00:42:56.000 --> 00:43:10.000

It's not spread around like a social security number. You If you have in the slot you could build in a trust protector which you should have for flexibility but the trust protector can also provide monitoring by making sure that things are done right with the trust.

 

00:43:10.000 --> 00:43:22.000

It's somebody to demand an accounting or change the trustee if somebody is taking advantage of the client. So there's also that you can integrate into this planning for aging clients.

 

00:43:22.000 --> 00:43:25.000

I said it in the context of life insurance, but I'm gonna say it in a broader way.

 

00:43:25.000 --> 00:43:29.000

Now, let me see if, no, I don't have another slide, so I'll say it here.

 

00:43:29.000 --> 00:43:35.000

Many of these younger clients may go out and buy, you know, millions of dollars a term life insurance.

 

00:43:35.000 --> 00:43:41.000

And it may be very inexpensive at the young age. The Jane and John in the example I gave were in their fortys.

 

00:43:41.000 --> 00:43:45.000

They were in their forties and

 

00:43:45.000 --> 00:43:57.000

They bought life insurance. They needed life insurance. Many advisors tell them you need an insurance trust. You can use, as I said earlier, these robust slats just integrate insurance trustee and insurance provisions in them.

 

00:43:57.000 --> 00:44:06.000

It's not a big deal to do. It's very easy to do. And if you do that, You don't need separate insurance trust.

 

00:44:06.000 --> 00:44:14.000

People will set up asset protection trust dynasty trust trust for kids trust for grandkids you know all of that the same slot.

 

00:44:14.000 --> 00:44:22.000

You just have a sprinkle power, a pot trust. All the name beneficiaries. So the concept of the slat that we've talked about.

 

00:44:22.000 --> 00:44:29.000

Gives you the ability to create. A single trust to address Benny. To address many goals and objectives.

 

00:44:29.000 --> 00:44:38.000

So it's easier for the client and less costly because it's one robust trust. Now, And that concept is segue into the next topic.

 

00:44:38.000 --> 00:44:50.000

What do you do different in planning or modifying planning? For the moderate wealth client to make this slap planning that we usually do for much wealthier clients makes sense for the lower wealth client.

 

00:44:50.000 --> 00:44:56.000

You want to tailor the trust. So that it's more adaptable. Cost is clearly a factor.

 

00:44:56.000 --> 00:45:06.000

If you use document generation software to generate your trust, you can create these trust in fairly quick order for a fairly reasonable fee.

 

00:45:06.000 --> 00:45:15.000

The trust that we do today in my office or for half the cost that it took in 2012 to do a trust because of the automation that we use.

 

00:45:15.000 --> 00:45:22.000

Even our billing rates are probably double what they were, maybe more than in 2,012. And yet we can do it for half the cost.

 

00:45:22.000 --> 00:45:41.000

Well, do document generation is really something to do. I would and I've talked about this I don't need to belabor it but I generally will put these trusts in the home state to start unless the clients really comfortable spending the And you can get it for again as little as $3,000 a administrative trustee in Nevada or Alaska or something like that.

 

00:45:41.000 --> 00:45:45.000

So I'll start in the home state if they don't want to spend that money. A few do.

 

00:45:45.000 --> 00:45:51.000

I'd say most don't. So start in the home state, use document generation.

 

00:45:51.000 --> 00:45:54.000

Make the planning more efficient.

 

00:45:54.000 --> 00:46:03.000

Get the financial planning done. I might default for it. All trust that I do in my office. I want to start with an institutional trustee.

 

00:46:03.000 --> 00:46:09.000

Whether it's an administrative trustee for a flat fee or a full blown institutional trustee depending on the circumstances.

 

00:46:09.000 --> 00:46:16.000

I like using institutional trustees. The IRS and creditors can argue that you had an implied agreement with an institution.

 

00:46:16.000 --> 00:46:21.000

If it's your brother, they can argue you had an applied agreement. He was gonna give you money whenever you wanted it.

 

00:46:21.000 --> 00:46:26.000

It's much safer to survive an attack by the IRS or creditors. The Levine case, which a year or 2 ago was a hot split dollar life insurance case.

 

00:46:26.000 --> 00:46:44.000

The court noted in a very strong positive way. That the client used South Dakota Trust Company is an independent institutional trustee.

 

00:46:44.000 --> 00:46:50.000

I like that. Add insurance provision so it's flexible so they don't need another trust.

 

00:46:50.000 --> 00:46:59.000

Consider whether you should do one trust instead of 2. With the acid protection motives, 2 may be better for these lower wealth clients because it's not about safeguarding exemption.

 

00:46:59.000 --> 00:47:10.000

It's more about asset protection and protecting wealth. Common situation I see for lower wealth clients moderate wealth clients that we're talking about here mass affluent clients.

 

00:47:10.000 --> 00:47:19.000

I'll set up a more robust slap for one in a fairly simple life insurance trust for the other to address that premature death.

 

00:47:19.000 --> 00:47:31.000

And have say insurance on the wife and her insurance trust, husband puts, you know, whatever he can into his slat, but that way if wife dies prematurely and husband lose access to the slat, there's insurance for him.

 

00:47:31.000 --> 00:47:49.000

Again, you can mix and match and build this based on the circumstances. Consider the non-tax the non estate tax benefits the step up and basis using a general power of appointment with an elderly family member that is an incredible value for a lower wealth client as well as the wealthy client.

 

00:47:49.000 --> 00:47:57.000

And again, in some circumstances, but I find it less so for the less wealthy client, a non-granter trust may provide current state income tax savings.

 

00:47:57.000 --> 00:48:05.000

And again, the reason I find it less so is because of the concerns about access being harder. To preserve.

 

00:48:05.000 --> 00:48:15.000

So there's some general slap planning, applicable to all clients. I kind of said in the beginning, we may not get to all of this, but we have a couple minutes and we'll go through some of it.

 

00:48:15.000 --> 00:48:24.000

To be respected, the plan has to be economically viable. First of all, it has to be administered properly.

 

00:48:24.000 --> 00:48:34.000

A really large number of clients never come back to their estate planning, attorneys or accountants. And they don't really get professional help administering plans.

 

00:48:34.000 --> 00:48:41.000

Every time I think I've seen, you know, the most ridiculous or the worst way a client could undermine a plan.

 

00:48:41.000 --> 00:48:46.000

You know, I see something worse than that, come back yet again. Clients need to be educated by all their advisors.

 

00:48:46.000 --> 00:48:55.000

You gotta talk to your planning team Do it once a year. It doesn't take a lot. You can have a Zoom Meeting.

 

00:48:55.000 --> 00:49:00.000

Once you've gone through the first annual review meeting and you got a checklist for a couple of these trusts.

 

00:49:00.000 --> 00:49:09.000

Could be a half an hour Zoom Meeting just to keep things on track. Clients don't understand things that to advisors are obvious and intuitive and they will do it wrong.

 

00:49:09.000 --> 00:49:12.000

And several years of things being done wrong, it becomes a costly mess to clean up. It's a bad paper trail.

 

00:49:12.000 --> 00:49:23.000

You can't undo it. You can try to fix it the best you can. But at some point how many foot faults do you need before it becomes a problem?

 

00:49:23.000 --> 00:49:31.000

The economics must make sense. Like I said, have a financial forecast done. Use life insurance to address issues like premature risk.

 

00:49:31.000 --> 00:49:42.000

Make sure for these if they're younger clients they have disability insurance coverage if one of them doesn't have adequate disability coverage and becomes incapacitated and loses their income.

 

00:49:42.000 --> 00:49:57.000

Now what? You gotta make sure the insurance planning is done as well. You don't having that kind of background, that's why I said to you, I would always do a solvent. It's a page and a half, 2 page document that makes statements like I have adequate resources.

 

00:49:57.000 --> 00:49:58.000

I understand what the trust is. I have adequate resources. I understand what the trust is. I'm not defrauding creditors.

 

00:49:58.000 --> 00:50:01.000

I understand what the trust is. I'm not defrauding creditors. I don't understand what the trust is. I'm not defrauding creditors.

 

00:50:01.000 --> 00:50:05.000

I don't owe child support, etc, etc. Get that sign too. It all helps.

 

00:50:05.000 --> 00:50:11.000

All of these steps help deflect that there was an implied agreement that the trustee was going to assuredly give money.

 

00:50:11.000 --> 00:50:21.000

Back to the client. The assumptions used in the forecast are important. This point alone is worth a whole lecture, but I'm going to do it in a minute.

 

00:50:21.000 --> 00:50:26.000

So forgive me, but we don't have enough time, but it's just I want to present a different thought.

 

00:50:26.000 --> 00:50:30.000

Let's say you go to your financial advisor.

 

00:50:30.000 --> 00:50:40.000

Which should be Jonathan. And your target goal for your financial forecast is you want an 80% likelihood of not running out of money by age 95.

 

00:50:40.000 --> 00:50:46.000

Let's say you feel comfortable that's reasonable. When you're doing a forecast to see if a slap makes sense.

 

00:50:46.000 --> 00:50:52.000

You don't need to use the same assumptions the client wants to make sure they don't run out of money.

 

00:50:52.000 --> 00:51:10.000

What if you used a 50% likelihood? Of not running out of money by life expectancy. That's says that the plan has got, you know, on this, the, the curve it's the topmost point of the the the curve, right?

 

00:51:10.000 --> 00:51:23.000

50% likelihood is succeeding. Isn't that reasonable to deflect? Challenge by a creditor or the IRS that you gave away too much and you made yourself in solvent you weren't in solving it a 50% likely to the plane succeeding to life expectancy.

 

00:51:23.000 --> 00:51:33.000

So you can use lower assumption. In the planning. To justify the slat. The same client made then say redo these numbers.

 

00:51:33.000 --> 00:51:39.000

I want an 80% likelihood of not running out of money by age. 95 even though you used 50% by whatever life expectancy was but that all that analysis can help support this deflected implied agreement.

 

00:51:39.000 --> 00:51:54.000

And help the client really understand better what's going on. The advisors role in backstopping slap planning is critical at every wealth level.

 

00:51:54.000 --> 00:52:06.000

Your proactive involvement, whatever role you're in account and attorney doesn't matter, will help the client realize those goals.

 

00:52:06.000 --> 00:52:21.000

Make sure you give consideration to the reciprocal trust doctrine. If wife is doing just insurance trust or husband just doing an insurance trust and the other spouse is doing a more robust slat and putting lots of money in it and the insurance stress is just getting funded with annual gifts.

 

00:52:21.000 --> 00:52:25.000

I'm not too worried about the reciprocal trust document but I would nevertheless differentiate them.

 

00:52:25.000 --> 00:52:34.000

I like having different trustees. I don't like having spouses as trustees. That being said, there's a lot of very smart practitioners that name the other spouse on these trusts.

 

00:52:34.000 --> 00:52:41.000

I don't love it. But I'm not saying it's wrong. To the extent you can create them at different times.

 

00:52:41.000 --> 00:52:50.000

That's why it's really important that people start planning now and not November, 2,025 right in November, 2,025.

 

00:52:50.000 --> 00:52:55.000

If a couple wants non-reciprocal slats, you're gonna do them immediately because you don't have any choice.

 

00:52:55.000 --> 00:53:06.000

You could do a trust in 2024. Do the other 1. 12 months later. The only case by the way that I'm aware of the talked about differentiating slats by time was 18 months.

 

00:53:06.000 --> 00:53:12.000

So I've heard all sorts of comments, but again, any difference is better. Different assets, different trustees.

 

00:53:12.000 --> 00:53:23.000

We've talked about that. Different terms, we've talked about that. I, I mentioned in it doesn't get enough attention, the step transaction doctrine.

 

00:53:23.000 --> 00:53:29.000

All assets, let's say, are in joint name. You want to divide them. I would then have husband and wife.

 

00:53:29.000 --> 00:53:40.000

Each get a different investment allocation, investment policy statement, invest differently, change it up, show dominion, spend some of the money, let time go by.

 

00:53:40.000 --> 00:53:47.000

I would say ideally a year. If possible, 6 months. If you can't, at least 30 days.

 

00:53:47.000 --> 00:53:58.000

The longer the better, there's no bright and fast rule. And the more control that each spouse exerts over those assets after they've been retitled.

 

00:53:58.000 --> 00:54:05.000

The more that it's realistic. So let's say there's a private LLC, family owned LLC, pay out a distribution.

 

00:54:05.000 --> 00:54:12.000

Aend and restate the operating agreement. Don't just do an assignment. Do everything you can to show independence.

 

00:54:12.000 --> 00:54:23.000

As the accountants make sure there's a K one issue to reflect who owns what when in the small deno case they didn't even issue the wife a K one when the husband gave her interest and then she gave him to a trust.

 

00:54:23.000 --> 00:54:28.000

The K ones didn't support the tax filings didn't support the G ever had an ownership interest.

 

00:54:28.000 --> 00:54:38.000

So do what you can to address the step transaction issue. Every client should be informed to start planning today, whatever their goals are, because again, time is their friend.

 

00:54:38.000 --> 00:54:44.000

The more time you have to differentiate steps to think through and discuss the planning to do proper forecasts.

 

00:54:44.000 --> 00:55:01.000

That's all fine. If you remember back to 2012 when clients showed up in even August of 2012 Every advisor was just absolutely swamped with people trying to desperately plan before the exemption went from 5 million inflation adjusted to 1 million.

 

00:55:01.000 --> 00:55:06.000

Didn't happen, but we were all swamped. We didn't have time to do the kind of planning I'm talking about.

 

00:55:06.000 --> 00:55:18.000

Now there is just no time to just get it done. So encourage clients to start. The more time they have, they can do more of the things that I just talked about to break the step transaction issue.

 

00:55:18.000 --> 00:55:32.000

Here's another point that I never here talked about. I hear people go on wax on about the reciprocal trust doctrine and be careful a lot of the people pontificating on this and writing articles on this.

 

00:55:32.000 --> 00:55:33.000

They say a lot of things that are not necessarily factually correct just their view. There's nothing wrong with that.

 

00:55:33.000 --> 00:55:44.000

But they should say, I think or I like to, not this is what you have to do or this is what the law is.

 

00:55:44.000 --> 00:55:51.000

But here's a really important point and I now have this in a standard memo that goes to every client.

 

00:55:51.000 --> 00:55:58.000

It does these slat type trust. If you are doing a slap. And I said, give one spouse a 5 and 5 power.

 

00:55:58.000 --> 00:56:06.000

Don't give it to the other. 5 of 5 powers, the power to withdraw, the greater of $5,000 or 5% of trust principle.

 

00:56:06.000 --> 00:56:17.000

And the reason that figure in those percent, that percentage is used is because that's the amount the tax laws permit you to withdraw without it becoming a general power of appointment if you had.

 

00:56:17.000 --> 00:56:28.000

$6,000 or 5.1% it would be a general power the whole trust will be included in your state but if it just 5 thought the greater or $5,000 or 5% You can do that.

 

00:56:28.000 --> 00:56:34.000

You will have 5% of the trust included in your state, but not more. So it's a great way to give access.

 

00:56:34.000 --> 00:56:49.000

It's a great way to differentiate the trust. But there's real economics to that. The wife has the ability to withdraw 5% of the trust assets and there's 10 million dollars that's $500,000 she can withdraw It's 1 million, it's 50,000.

 

00:56:49.000 --> 00:56:51.000

If she can withdraw 50,000 in the husband can't withdraw anything and you have 2 1 million dollar slats year after year that's a significant difference.

 

00:56:51.000 --> 00:57:05.000

What if there's a divorce? What if it's a blended family? Those powers that people willy-nilly throw in because they want to make the trust different.

 

00:57:05.000 --> 00:57:12.000

And I'm not saying that's wrong to do. Make sure the clients understand there's real actual economic and legal implications to those powers.

 

00:57:12.000 --> 00:57:19.000

Lots of times they don't. Be sure to consider income tax planning. It's not just estate tax and asset protection planning.

 

00:57:19.000 --> 00:57:29.000

Basis step up, really important, giving a general power appointment is an incredibly valuable planning tool. The swap power means I can swap it back to my estate.

 

00:57:29.000 --> 00:57:37.000

So when I die, I get a step up. There's a step up and basis. But if you have an elderly relative you can give it to and they die in the next year or 2.

 

00:57:37.000 --> 00:57:43.000

You got a basis step up while the clients are still alive. What if phenomenal tool? Combine it with life insurance.

 

00:57:43.000 --> 00:57:50.000

We've talked about that. Put in a swap power so you can do what I just said to get a basis step up for the clients death, which may be decades and decades for a younger couple of especially.

 

00:57:50.000 --> 00:58:02.000

After a parent dies, but What good is a swap power if you don't monitor it? That's why you need an annual review meeting.

 

00:58:02.000 --> 00:58:04.000

Hey, Jonathan, how much is their, their, you know, stock portfolio appreciated? Do we want to swap it back?

 

00:58:04.000 --> 00:58:15.000

They're in their eightys already. You gotta ask those questions. If the clients don't come back for periodic reviews, we can't help them do that.

 

00:58:15.000 --> 00:58:21.000

Tax reimbursement clause. Oh, here's the CCA I mentioned. I couldn't remember the number, but it's here.

 

00:58:21.000 --> 00:58:37.000

You got to read this. It's just put out by the IRS, I think. They have a chilling effect on the kind of planning that we're doing because it's such a harsh ridiculous in my view result.

 

00:58:37.000 --> 00:58:42.000

Okay.

 

00:58:42.000 --> 00:58:47.000

Access is key. We only have a minute or 2 left. We've talked about this, but let me just go through it.

 

00:58:47.000 --> 00:58:55.000

And there's more in this slide deck that I know Jonathan is distributing and if you want some more materials on this I can give Jonathan some articles that he can send all of you as well.

 

00:58:55.000 --> 00:59:03.000

Do they have sufficient assets in their, outside of the trust to be comfortable? What kind of access do you have to give?

 

00:59:03.000 --> 00:59:10.000

Identify gaps. Like I said, for a young couple, if they don't have adequate to.

 

00:59:10.000 --> 00:59:15.000

Put like in the example I gave with John and Jane, 6 50 and 500 grand 1 million changed.

 

00:59:15.000 --> 00:59:23.000

Into a trust and they don't have disability coverage. The restrictions the trust creates with no disability and somebody coverage and somebody gets sick could be a problem.

 

00:59:23.000 --> 00:59:33.000

Make sure that's all addressed. The insurance plan backstops the slap plan. Who are they naming as beneficiaries?

 

00:59:33.000 --> 00:59:40.000

Keep in mind for future income tax planning, you want a broad class of beneficiaries. You want the ability to add charitable beneficiaries.

 

00:59:40.000 --> 00:59:47.000

It can make income tax planning if grant or trust status is turned off. And certainly after the death of the settler, much more efficient.

 

00:59:47.000 --> 00:59:54.000

I like permitting the addition of charitable beneficiaries. But by the way, you can't have somebody be able to add a beneficiary.

 

00:59:54.000 --> 01:00:01.000

And have a non granted trust that makes it a grant or trust in itself The power to make loans is very useful.

 

01:00:01.000 --> 01:00:06.000

Here's a sample loan provision. Access on death of the first spouse. You have to think about that.

 

01:00:06.000 --> 01:00:15.000

That's why I like the domestic acid protection trust, the hybrid. And the spat. There's some much more information in sample clauses on that.

 

01:00:15.000 --> 01:00:24.000

We've talked about giving access through loans, charity. You can have a vacation home with even a primary residence though I don't love that included in the slab.

 

01:00:24.000 --> 01:00:33.000

We're pretty much out of time. Let me just kind of wrap up. Spouse a lifetime access trust or the hot ticket. Everyone's talking about them.

 

01:00:33.000 --> 01:00:52.000

They're not nearly as simple as many people lead others to believe or as clients think. You need to put a lot of care to them, but the key point of what I was trying to do for the hour we had but say you can take the same concept that wealthier clients are using to save estate tax in the future and safeguard their exemption.

 

01:00:52.000 --> 01:01:01.000

And apply it for mass affluent clients for asset protection, income tax planning. Instead of doing a simple insurance stress, the slad is just more robust version of the same thing.

 

01:01:01.000 --> 01:01:07.000

Why not just do a better trust and save them the cost and hassle of all these other trusts.

 

01:01:07.000 --> 01:01:16.000

It's a great way to save and safeguard assets for the future. So hopefully, I, I've given you some thoughts where you can take this slad idea that you're probably doing a lot of and will be doing a ton more of as we get towards the end of 2025 and apply it to your more mass affluent clients.

 

01:01:16.000 --> 01:01:26.000

Great, thank you so much. If anyone has any specific questions, new business opportunities or any other issues I like to discuss, please feel free to reach out directly to Martin or myself where appropriate.

 

01:01:26.000 --> 01:01:38.000

I'll be sure to include his contact information. In the follow-up email of this program, as I mentioned at the answer, the goal of these programs is to say up to date on timely wealth management related topics and to collaborate where appropriate.

 

01:01:38.000 --> 01:01:39.000

And I think we can all agree that the clients who are best prepared are the ones who are served by team of knowledgeable advisors.

 

01:01:39.000 --> 01:01:54.000

4 more quick items before I let you go. First and most important. Later today you will receive an email from me with an evaluation form for the program.

 

01:01:54.000 --> 01:02:08.000

I will ask you to input the code that I mentioned here today in order to receive your credit. That is submitted in the coming days you'll receive an email from ace seminars with your certificate again please keep an eye out for an email from ace seminars.

 

01:02:08.000 --> 01:02:11.000

If you don't see that email in the next few days, be sure to check your spam folder.

 

01:02:11.000 --> 01:02:16.000

Again, the email with your certificate will not be for me. It will be from a seminars.

 

01:02:16.000 --> 01:02:27.000

Second, my winter webinar series continues on. February fifteenth on CRTs is Stretch IRA substitutes featuring Evan Unsolman, Chief Executive Officer, CRT experts, LLC.

 

01:02:27.000 --> 01:02:37.000

I'll send out an invitation to this program in the coming days. In the meantime, if you have a friend, colleague, your client who likes to be notified of my upcoming webinars, they can email me with the word webinar in the subject line.

 

01:02:37.000 --> 01:02:39.000

I'll be sure to add them to my webinar. Distribution list. My email is Jonathan at Parkbridge Wealth.

 

01:02:39.000 --> 01:02:53.000

Com. Third, you can follow all my work on Twitter and Instagram at Jonathan on money. You can also listen to my weekly podcast called Jonathan on Money, which is available on Apple Spotify wherever you get your podcast.

 

01:02:53.000 --> 01:02:59.000

And you can watch my new daily financial planning clips by following me on YouTube at Jonathan on money as well.

 

01:02:59.000 --> 01:03:04.000

And fourth, please take 30 s to fill out my survey at the end of this program. It helps me improve my webinars and find timely and interesting content to attend these and I thank you in advance for that.

 

01:03:04.000 --> 01:03:16.000

And with that, this concludes today