Cameron is happily married and a physician with four children.
Cameron’s profession makes him a target for frivolous lawsuits and potential future creditors.
Cameron would like to protect a portion of his assets during his lifetime. He has malpractice insurance but would like additional insulation for his assets.
How can Cameron protect a portion of his assets but still have access to the assets (albeit sparingly) if needed?
Cameron’s attorney drafts a Nevada Asset Protection Trust where he is the grantor and the beneficiary of the trust.
Cameron contributes a portion of his assets to the Nevada Asset Protection Trust.
2 years after the date of transfer, Cameron’s assets should be protected from his creditors, including divorcing spouses, and child support/alimony.
The trust should be a rainy-day fund and distributions should be limited.
Players in the NAPT strategy:
Cameron is the grantor. He can also retain investment discretion and determine the investments inside the trust.
IconTrust is typically the administrative and distribution trustee to handle the books and records and distributions from the trust.
Nevada Incomplete Gift Non-Grantor Trust (NING) Case Study
Meet Anna
Anna worked for a technology company in San Francisco and purchased shares of their stock over her career. The stock has gone public, and Anna has $10M in the company’s stock.
Anna wants to sell the stock, but she is upset about her potential tax bill. She is in the 39.6% federal tax bracket and will have to pay 13.3% in California state income tax on the sale of the stock.
How can Anna sell her stock and potentially avoid California state income tax?
Anna’s attorney creates a Nevada Incomplete Gift Non-Grantor Trust (NING), and Anna transfers the stock into the trust. Nevada has no state income tax.
IconTrust as the Nevada trustee sells the stock and reinvests the capital with Anna’s preferred financial professional.
Anna has potentially avoided $1,330,000 in California state income taxes.
Players in the NING strategy:
Anna is the grantor. Her role is to transfer the stock into the NING.
IconTrust is the administrative trustee to handle the books and records for the trust.
A Distribution Committee is required for a NING trust. The distribution committee is made up of at least three adverse parties (beneficiaries). These parties would direct IconTrust on distributions to the beneficiaries. A majority with grantor consent is required to make a distribution.
Dynasty Trust Case Study
Meet Ellen
Ellen is a 70-year-old widower with two children and four grandchildren. Her net worth is $35M.
Ellen would like her children and grandchildren to benefit from her assets while she is alive and not have to wait until she passes away.
Ellen has not made any gifts and has a substantial estate tax issue (40% above $11.7M at her death).
How can Ellen benefit her children and grandchildren while minimizing estate taxes?
Ellen’s attorney drafts an irrevocable dynasty trust for the benefit of her children and descendants.
Ellen gifts $11.7M in assets to the trust. Ellen’s CPA prepares and files a gift tax return reporting the gift.
When Ellen passes away, the value of the trust at that time is not included in Ellen’s estate and no estate tax would be due for the gifted assets.
Players in the Dynasty Trust strategy:
Ellen is the grantor. To ensure the assets remain outside of her estate, Ellen should not retain investment or distribution discretion.
The trust would typically be a grantor trust for income tax purposes. Ellen would be responsible for paying income taxes on behalf of the trust thereby reducing her estate even further.
IconTrust is typically the administrative and distribution trustee to handle the books and records and distributions from the trust.
A third party that Ellen chooses could be the investment trustee and determine the investments inside the trust.
Beneficiary Defective Inheritor’s Trust (BDIT) Case Study
Meet Bill
Bill is a 37-year-old entrepreneur.
Bill owns a business currently valued at $3M with zero basis that he anticipates will increase in value substantially in the next ten years. At the end of ten years, the business may be worth $20M.
Bill is very sensitive to taxes but would still like to benefit from the business.
How can Bill reduce his estate tax burden without giving the assets away, so that he can still benefit from the business?
Bill’s attorney drafts a BDIT with a third party named as grantor and Bill named as beneficiary.
The third-party grantor gifts $5,000 to the trust which Bill has a right to withdraw. If Bill does not withdraw the gift, and it lapses, Bill becomes the income taxpayer for the trust.
Bill can now sell his interest in the business to the trust for a promissory note.
Because Bill is the taxpayer for the trust, the sale to the trust does not trigger a capital gains tax. The trust carries over Bill’s basis in the company.
The sale to the trust freezes the value inside Bill’s estate to the promissory note and any interest paid on the note.
Players in the BDIT strategy:
A third-party is the grantor. Typically, a friend or family member that is willing and able to gift $5,000. Other than the initial gift, the grantor typically has no further role.
Bill is the sole beneficiary of the trust and typically retains investment discretion for all investment decisions other than transactions with a business he is a part of or transactions involving life insurance on his life.
IconTrust is typically the administrative and distribution trustee to handle the books and records and distributions from the trust. IconTrust usually takes investment discretion in situations where Bill should not have the discretion.
Spousal Lifetime Access Trust (SLAT) Case Study
Meet Jack and Diane
Jack and Diane are a happily married couple.
Jack and Diane have three children. They have a combined net worth of $30M consisting of $25M in Diane’s business and $5M in Jacks.
Jack and Diane realize they have an estate tax problem and would prefer not to pay estate taxes.
Jack and Diane are young enough to be concerned about giving away large amounts of assets to their children and descendants.
How can Jack and Diane reduce their potential estate tax liability while still having the ability to benefit from the assets?
Jack and Diane’s attorney drafts two non-reciprocal SLATs.
In the first trust, Jack is the grantor, and the beneficiary is Diane.
In the second trust, Diane is the grantor, and the beneficiaries are Jack and their descendants.
The trust should be drafted with enough differences so that they are not reciprocal.
Jack gifts $5M to the trust he established. Diane gifts $11.7M to the trust she established.
Players in the SLAT strategy:
Jack and Diane are grantors of their respective trusts.
Jack and Diane are beneficiaries of each other’s trusts. The beneficiary spouse typically retains investment discretion and determines the investments inside the trust.
IconTrust is typically the administrative and distribution trustee to handle the books and records and distributions from the trust.
