1. ESSENTIAL ESTATE PLANNING Friday, July 19, 2013 11:10 am – 11:40 am
Alan S. Gassman, J.D., LL.M.

2. TO VIEW THIS WEBINAR PLEASE VISIT: 2
Copyright © 2013 Gassman Law Associates, P.A.

3. TO VIEW THIS WEBINAR PLEASE VISIT: 3
Copyright © 2013 Gassman Law Associates, P.A.

4. Amputee awarded $30M 4
Jurors say a mom who lost her fingers and feet deserves that much. By Justin George and Colleen Jenkins Published May 26, 2007 _______________________________________________________________________ TAMPA – Sally Lucia, a mother of three who lost her fingers and feet after complications of tummy tuck surgery, deserves $30-million, a jury in a malpractice suit said Friday. But it will be up to Hillsborough Circuit Judge Gregory P. Holder to sort out how much of that is owed by a former Tampa doctor and a hospital. Defense attorneys predicted that Lucia, 47, would get somewhere between $12-million and $16-million, while her own attorneys declined to name figures. Holder must now make sense of the jury’s parceling out of blame and the impact of Florida’s “Good Samaritan” law. That is expected to begin Wednesday. Four women on the jury wouldn’t leave the courtroom without seeing Lucia privately and telling her they did everything they could to ensure justice was served. Afterward, teary-eyed, they declined to comment. Lucia said the verdict left her “overwhelmed, but in a good way.” She said she was glad the trail was finally over.
Jurors assigned Memorial Hospital 40 percent blame. Dr. George Haedicke 20 percent blame and Dr. Charles McLaughlin 40 percent blame. McLaughlin reached a settlement for an undisclosed amount and was not on trial. While Lucia viewed the verdict as a win, so did the attorney representing Haedicke. While finding fault, jurors said Haedicke did not act with reckless disregard, which could give him immunity under the state’s “Good Samaritan” law. The law protects emergency room doctors seeing patients in emergencies from malpractice judgments as long as a jury finds they didn’t act recklessly. An hour before jurors reached their verdict, they told Holder they were deadlocked. The trail had taken three weeks. They had deliberated 17 hours. He ordered them to keep talking. Lucia’s troubles culminated on Super Bowl Sunday 2001 when an ambulance carried her to Memorial Hospital in Tampa. She had undergone a tummy tuck 20 days earlier to repair abdominal muscle damage from three caesarean sections. Blood and fluid had collected in her wound. Her fingers were blue. Her surgeon was out of town. Hospital staff called Haedicke, the on-call surgeon who was playing at a park with his children. During closing arguments Wednesday, attorneys quibbled about what happened once doctor and patient met.

5. $116M is awarded in stroke suit5
By TIMES STAFF WRITER Published September 30, 2006 _______________________________________________________________________ TAMPA – A jury on Friday awarded a $116-million medical malpractice verdict to the family of a Tampa man who attorneys argued became a paraplegic after an unlicensed hospital worker misdiagnosed a stroke as sinusitis. On Aug. 9, 2000, All Navarro, now 50, of Tampa went to University Community Hospital Carrollwood campus with nausea, double vision, headaches and an unsteady gate. He was sent home with the diagnosis of sinusitis, attorney Steve Yerrid said, and went on to suffer severe brain swelling. Twenty hours after his initial diagnosis, Navarro was back in the emergency room, getting treated for a stroke. Yerrid said the decision was the largest jury award in a malpractice suit in Florida history. Punitive damages are expected to be considered on Tuesday. Navarro, a former pro basketball player from the Philippines, came to the United States in the 1990s. His wife Marilyn, 52, and son, Scottie, 10, are named as claimants in the jury verdict, Yerrid said. UCH officials could not be reached for comment late Friday.

6. Doctors in lawsuit now suing attorneys6
By Carrie Weimar Published March 7, 2007
_____________________________________________________________________ TAMPA – They got hammered with a record-breaking $217-million verdict for misdiagnosing a patient who suffered a stroke. Now the doctors who were the target of that high-profile lawsuit are hoping to turn the tables. They’re suing their attorneys. Among the doctors’ chief complaints: The attorneys turned town settlement offers of $1-million and $3-million, a fraction of the final judgment. “This case should have never gone to trial,” said Dr. Frank Winkles, who is representing Franklin, Favata & Hulls physicians group and Carrollwood Emergency Physicians. “It should have settled. Those doctors were just hung out to dry,” Winkles said. The other doctor involved in the case, Michael Austin, is represented by Tampa attorney Barry Cohen, who said the lawsuit spoke for itself. “The allegations are pretty clear,” Cohen said. The lawyers named in the suit, filed March 2 in Hillsborough Circuit Court, did not return telephone calls seeking comment.
The lawyers are Louis J. LaCava and Victor Guzman, who work for a West Palm Beach firm that also has a Tampa branch. Also named is Brian Stokes, who is with the Unger Law Group, which is based in Orlando. The disagreement stems from a medical malpractice case decided by a Tampa jury in October. Allan Navarro, a former pro basketball player in the Philippines, went to the University Community Hospital Carrollwood emergency room August 9, 2000, complaining of nausea, headache, dizziness and double vision. He was sent home five hours later with a painkiller prescription and a diagnosis of sinusitis. No one realized Navarro was having a stroke. He returned to the hospital with more severe symptoms the next morning and underwent surgery hours later to relieve brain swelling. He ended up in a coma for three months and emerged from it permanently disabled. Before his illness, Navarro was a machine operator earning just above minimum wage. Now he is confined to bed or must use a wheelchair. Navarro’s attorney sued. Testimony revealed that an unlicensed physician’s assistant initially examined Navarro, and Austin based his diagnosis on that exam.

7. Doctor kills self after malpractice verdict7
Lawrence Grey, who specialized in vasectomy reversals, had been ordered to pay a former patient $1-million. By Bill Coats Published May 4, 2006 _______________________________________________________________________ TAMPA – On Friday afternoon, Dr. Lawrence Grey listened in a Hillsborough County courtroom as a jury announced its verdict: He should pay a former patient $1-million. Late Friday night, Grey’s wife found him dead in the $2-million Bayshore Boulevard home, hanging in a bedroom closet from a yellow nylon rope. Grey’s apparent suicide left lawyers in the malpractice case reeling. Jeffery Hunter, the Tampa lawyer who represented Grey, heard about the death Saturday night after a family outing. “I was shocked,” Hunter said Wednesday “I still am.” Timothy Moran, the Jacksonville lawyer who represented the former patient, learned of Grey’s death Wednesday from a Times reporter.
“I never intended for something like this to happen,” Moran said. “I blame his insurance company for not doing the right thing.” Moran said he offered to settle the case for $250,000, the limit of Grey’s insurance coverage, and later for $175,000 but was turned down. If the jury’s verdict of $1,005,000 stands, Grey’s business will be liable for $755,000. Hunter wouldn’t comment on the settlement decisions. He said he intends to ask for a new trial. If denied, he plans to appeal. Grey, a 51-year old urologist, specialized in microsurgery that reversed vasectomies, restoring his patients’ abilities to father children. Grey marketed himself online as the Vas Doctor. That’s a reference to the vas deferens, the narrow tube through which sperm travels from the testicles, and which a surgeon snips in a vasectomy. Grey used laser tools and techniques that he developed, he told the Tampa Bay Business Journal in a profile three years ago. “The microbeam is strictly my own creation,” Grey said in the profile. “The laser beam gives you a cleaner, more precise cut with less damage to tissue. Hunter said Grey recently was performing 400 to 450 vasectomy reversals a year.

8. “It wasn’t raining when Noah built the ark.”8
“It wasn’t raining when Noah built the ark.”

9. FLORIDA RESIDENTS- LEARNING HOW TO PROTECT YOUR ASSETS IN TWO MINUTES9
CREDITOR EXEMPT ASSETS
ASSETS THAT ARE DIFFICULT FOR A CREDITOR TO OBTAIN
ASSETS EXPOSED TO CREDITORS
Homestead
-Up to half acre if within city limits.
-May be immune from fraudulent transfer statute.
Limited partnership and similar entity interests.
Individual money and brokerage accounts.
IRA
-Includes ROTH, Rollover, and Voluntary IRAs, but possibly not inherited IRAs.
Foreign trusts and companies.
Joint assets where both spouses owe money.
401(k)
-Maximize these!
Foreign bank accounts.
One-half of any joint assets not TBE where one spouse owes money.
Permanent Life Insurance
-Must be owned by insured.
Note – foreign entities are very rarely recommended and must be reported to IRS -
Personal physical assets, including car, except for $4,000 exemption ($1,000 if homestead exemption is claimed in bankruptcy).
Annuity Contracts
Vocabulary:
EXEMPT ASSET – An asset that a creditor cannot reach by reason of Florida law – protects Florida residents.
CHARGING ORDER PROTECTION – The creditor of a partner in a limited partnership, limited liability limited partnership, or properly drafted LLC can only receive distributions as and when they would be paid to the partner.
FRAUDULENT TRANSFER - Defined as a transfer made for the purpose of avoiding a creditor. Florida has a 4 year reach back statute on fraudulent transfers. A fraudulent transfer into the homestead may not be set aside unless the debtor is in bankruptcy. It takes 3 creditors of a debtor who has 12 or more creditors to force a bankruptcy.
Upon filing a Chapter 7 Bankruptcy, an individual debtor may be able to cancel all debts owed and keep exempt assets, subject to certain exemptions.
Annuities and life insurance policies are not always good investments, and can be subject to sales charges and administrative fees.
There is a lot more to know- but this chart may be a good first step.
Wages of Head-of-Household
Wage Accounts (for six months only)
Tenancy by the Entireties (joint where only one spouse is obligated)
- Must be properly and specially titled – joint with right of survivorship may not qualify.
529 College Savings Plans

10. ASSET PROTECTION DEFINITIONS10
To understand the subject of asset protection, you must speak the language. The following vocabulary and definitions will provide you with a basic understanding of the fundamental concepts which make up the “art and science” of Florida creditor protection planning.
Debtor - A party who owes money.
Creditor - A party who is owed money by the debtor.
Judgment - A court order establishing that a debtor owes money to a creditor. The existence of a judgment is almost always necessary before a creditor can seize a debtor’s property.
Plaintiff - A party suing to get a judgment against a defendant.
Defendant - A party being sued by a plaintiff.
Exempt Assets - Assets that are protected from seizure under the creditor laws. A debtor will be able to keep these assets notwithstanding that a creditor may have a judgment against the
Non-Exempt Assets - Assets of a debtor that are subject to creditor claims.
Fraudulent Transfer - As explained in Chapter 14, this is the name given to a transfer of assets from a creditor available status to a creditor non-available status if a primary purpose was to avoid known creditors. Under federal and state law, such transfers may be set aside if the assets are within the jurisdiction of an applicable court making such a finding. Outside of Bankruptcy Court, Florida has a statute of limitations on the ability of a creditor to set aside a fraudulent transfer, which in many cases runs 4 years after the applicable transfer. This does not apply under Florida law to a transfer of assets to homestead. Under bankruptcy law, however, a discharge of debt can be denied if there has been a fraudulent transfer made within one year of the bankruptcy filing. Also, the homestead exemption may be limited to $136,875, if there has been a “fraudulent transfer” to homestead within 10 years of filing bankruptcy. There is also a 10 year set aside rule for “fraudulent transfers to asset protection trusts and similar arrangements” under the 2005 Bankruptcy Act. Oftentimes, clients will be advised to make transfers in exchange for receiving full value to avoid the fraudulent transfer rules while still making the resulting arrangement more creditor protective than it would have been.
Preferential Transfer - A transfer that may be set aside under state or bankruptcy law, such as a transfer made to any party within 90 days of filing a bankruptcy, or a transfer made to an “insider” within one year of filing the bankruptcy. See also Florida Statute §726 (providing a two year look back on transfers).

11. ASSET PROTECTION DEFINITIONS11
Charging Order - A creditor with a judgment cannot reach into a properly structured limited partnership or LLC arrangement, where the debtor does not own the entire entity. Instead, the creditor receives a “charging order” from the court, whereby if and when distributions are made from the entity, the pro rata share of the debtor would be paid to the creditor. There is nothing in the law that allows a court order that a distribution be made. Therefore, someone having a judgment against a debtor whose sole asset is a part ownership interest in a limited partnership or an LLC may have limited leverage to obtain cash or monies from the debtor, although the debtor will also have difficulty receiving distributions when a charging order is in place. This will often result in settlement, or the possibility of the creditor trying to force the debtor into bankruptcy.
Firewall Protection - The concept that the shareholder of a corporation or limited partner in a limited partnership will not be liable for liabilities incurred by the entity. This is why many companies put the more hazardous activities under a separate subsidiary.
Limited Liability Partnerships, Limited Partnerships, Limited Liability Limited Partnerships, Limited Liability Companies, Professional Limited Liability Companies, and Partnerships of the above Entities - The names given to various legal entities which have different effects as to firewall, tax, and charging order versus asset seizure protection. Be cautious as to which entity you choose because they do not all offer the same protection. For example, the creditor of a partner in a Florida limited liability partnership (LLP) can seize the partnership interests, and is not limited to receiving a charging order, but the creditor of a partner in a Florida limited partnership (LP) or a limited liability limited partnership (LLLP) will be limited to the charging order remedy. It is important not to confuse these entities, but this commonly occurs, even among well-meaning lawyers.
Staying Out of Bankruptcy - Many debtors will prefer to stay out of bankruptcy, so it is important for someone with an imminent judgment to understand how this can be achieved. Generally, it takes three creditors to force an individual into bankruptcy, if that individual has at least 12 creditors.
Bankruptcy - A federal process whereby every debtor has the right to file in the bankruptcy court, generally under Chapter 7, Chapter 11, or Chapter 13. Many lawyers say that this is like having the debtor “swim in a fish bowl” because there must be full disclosure of all documentation and information upon filing.

12. ASSET PROTECTION DEFINITIONS12
Joint and Several Liability - The concept that individuals who participate in a negligent or improper act will be totally liable for all damages imposed to the extent that the other “co-defendants” do not pay their fair share. There are limitations on joint and several liability pursuant to Florida Statute Section
Vicarious Liability- The concept that an employer is generally responsible for liabilities incurred by an employee acting within the scope of the employee’s duties. The Greek term for this phenomenon is “respondeat superior.”
Under this concept, parents may be responsible for the driving activities of their nannies or errand runners, and doctors may be responsible for unforeseen actions by employees who might aggressively try to help people using prescription scripts, giving medical advice, and/or driving automobiles.
Secured Interest - The concept whereby a creditor can record a mortgage or lien on assets whereby that creditor would be entitled to repossess the assets and sell them at auction to satisfy a debt owed to the creditor. Real estate is liened by the recording of a proper mortgage, and non-real estate assets may be liened by recording UCC-1 Financing Statements based upon appropriately drafted security and/or pledge agreements. If a friendly debtor has a secured interest in a particular asset, then another debtor would have to pay the friendly secured debtor before they would be able to seize the asset secured. This is why doctors will often give the bank with a mortgage on business real estate a lien against medical practice assets, so that a malpractice claimant would have to pay the bank off or take other steps before seizing medical practice assets.
Marshaling of Assets - Whereby a party having a lien against assets may be forced to sacrifice their position if there are plenty of other assets that it has access to, to satisfy the obligation of the debtor. Over-secured creditor issues may also arise.
Asset Protection Trust - A trust arrangement whereby creditors of the grantor may not have access – which is contrary to Florida and basic common law that if the grantor could receive any benefit whatsoever, then creditors may receive all assets.
Bad Faith - The malpractice insurance carrier has an obligation to settle any claim within the limits of coverage of the physician, if reasonably possible. The failure of an insurance carrier to settle within policy limits can result in the carrier being responsible for an “excess verdict.” When this occurs, the plaintiff’s lawyer will often settle with the defendant by receiving an assignment of the defendant’s right to pursue the insurance carrier for the excess amount.

13. ASSET PROTECTION DEFINITIONS13
If the malpractice carrier believes it has a 90% chance winning at trial and a 10% chance of losing with a verdict well over policy limits, then it may make good economic sense for the carrier to take the chance, but not from the point of view of the physician. If the carrier takes the chance then if it has acted in bad faith it will be responsible for any excess verdict. Private legal counsel is commonly hired to encourage the carrier to settle within policy limits, and a physician should almost never encourage a carrier not to settle or be without private representation when the carrier or its lawyer recommends private representation! Fortunately, most verdicts exceeding coverage limits result in the physician assigning their bad faith claim to the plaintiff in exchange for a total release, particularly where the physician is otherwise judgment proof.
Automobile Liability – The owner of a motor vehicle in Florida is liable for operation of the vehicle by another driver, except that if the other driver has insurance then the owner’s exposure may be limited to $300,000 per incident. If the driver has $500,000 of liability insurance, then the owner may not have liability exposure, unless the owner was negligent in allowing the driver to use the vehicle.
Sovereign Liability - The concept whereby an individual working for a governmental agency and the agency itself has limited liability, presently being $250,000 per incident. This applies to a physician working full time for public hospitals, medical schools, and the Veteran’s Administration.
Successor Liability - When a corporation has a liability and a “successor corporation” has identical or similar ownership, identity, customers, employees and/or general identity, a judge may find the new company responsible for the liabilities of the old company, even if there was a legitimate bankruptcy of the old company before the new company was formed and operational.
Reverse Veil Piercing - When a court unwinds transfers made to entities where the transferor is a debtor that had control over the entity, and used the entity to disguise personal assets to keep them beyond the reach of personal creditors.
Concealment - Under the doctrine of concealment an asset “given away” but actually held for the original transferor will be considered as continually owned by the original transferor, notwithstanding title. Concealing assets puts the debtor at risk for losing a bankruptcy discharge.
How to Stop Worrying and Start Living- A book written by the late Dale Carnegie, which includes phenomenal advice on how to counsel for and live with concerns about what may happen in the future, what can be done about these potential future problems, and how to handle oneself and others in a logical, sequential, and effective manner.

14. UNDERSTANDING YOUR LIABILITY INSURANCE COVERAGE14
The vast majority of carriers will only issue a $250,000 policy on your home, a $250,000 policy on your driving, and a $250,000 policy on your vacation home. A separate “umbrella carrier” or “carriers” will then issue separate policies for above $250,000, as shown in the example below. Sometimes one carrier will write two or more of the below described policies, but often there will be 3 or more carriers involved and coordination can be a challenge:
$5,000,000
$251,000
Umbrella Policy #1
Covers claims for home at $300,000 and for cars at $250,000.
Must be “drop-down” umbrella if home policy is issued by Citizens or a comparable state agency that does not cover liabilities from pools, pets, or other notable exceptions.
$301,000
Umbrella Policy #2
May need a separate umbrella for out-of-state vacation home, large boats or other items.
$250,000 $0
Policy #1 – Homeowners
Policy #2 – Vacation Home
$300,000
Policy #3 – Car Driver and Owner Policy
Policy #4 - Big Boat at Vacation Home

15. UMBRELLA INSURANCE COVERAGE15
Re: UMBRELLA LIABILITY INSURANCE COVERAGE Dear ________________: As part of our planning I wanted to reiterate the importance of having an appropriately coordinated and “gap free” liability and casualty insurance program. I am enclosing a sample letter that some clients use to help assure that they have coverage for common gaps or mistakes made in structuring liability insurance. If you would like assistance in completing this type of letter, please let me know. The rest of this letter is about umbrella liability insurance coverage. We believe that it is very important to have appropriate limits of liability on automobile and homeowner insurance policies. Typically, the automobile and homeowner policies will be at $500,000 coverage, and then there will be excess coverage under what is called a "personal umbrella policy.“ The personal umbrella policy is used in combination with homeowners and auto policies to cover most clients' needs. If it is a true "umbrella" it will provide excess limits above and beyond your primary insurance coverage (such as homeowners, automobile or boat policy), and will also provide coverage for situations excluded or not addressed by underlying coverages. Each individual insurance company will have its own requirement for limits that you must have on your primary policies. You will want to be careful to assure that these policies are coordinated with your umbrella coverage. Umbrella limits start at $1,000,000 and can go over $10,000,000. Pricing for these policies are based primarily on the number of houses and vehicles to be insured, with each additional $1,000,000 of coverage being less expensive than the preceding. In your situation I would probably have $___________________ of umbrella liability insurance. Also, I would consider placing much of your brokerage account and other assets under a family limited partnership to further insulate you for creditor protection purposes. Another coverage that is often underutilized by clients is called "uninsured motorist coverage." If you are in an automobile accident caused by someone who does not have enough coverage to pay for your damages, you can pursue your own insurance company to the extent of your "uninsured motorist" coverage. We encourage clients to see what it costs to have $500,000 or more in uninsured motorist coverage to help compensate for catastrophic accidents that can happen. Some carriers, including citizens and carriers who have assumed policies from citizens do not provide liability coverage for pool and pet or animal related liabilities. In this event the Umbrella liability coverage may or may not apply. This is something that should be discussed with the insurance agency or carrier that provides liability coverage. If we can provide you with any further information or with assistance concerning your insurances, please let us know. Very truly yours, Alan S. Gassman

16. 16 Dear Liability Insurance Agency and/or Carrier:
I recently met with my estate planning lawyer and wanted to make sure of the following:
1. Please confirm that we have Personal Liability Umbrella insurance covering our automobiles, boats, recreational vehicles, and all properties owned. I would like quotes on the following coverage limits, $1,000,000, $3,000,000 and $5,000,000, with and without Uninsured Motorist coverage.
2. Please confirm that we are covered for animal liability under our primary homeowners insurance and confirm that the Liability Umbrella would also extend to animal liability. We have been told that the primary homeowners may exclude animal liability and that some Liability Umbrella policies will not provide coverage when the primary homeowners insurance excludes same.
3. Please confirm that we are covered for pool related accidents occurring on our property and also confirm that the Personal Liability Umbrella policy will also extend coverage to pool related accidents.
4. Can you please confirm that we are covered for cars being driven by _____________________.
5. Can you please confirm that we are covered for the investment property that we own at ______________________________. It is titled under the name of ______________________________?
6. Can you please confirm that we are covered for our ______________________________ boat, which is ______ foot long and is normally stored at ______________________________. The horsepower is ______________.
Are we also covered for trailering the boat with our trailer?
Also, can you please confirm that we are covered for our waverunner/jet ski which is a _________________ with horsepower of _________________. It is stored at ________________________.
7. You do not handle the coverage for our vacation ______________________________ in ______________________________ or our vacation ____________________________ in ______________________________. Is our potential liability relating to the use of these properties covered under our umbrella, or do we have to obtain a separate umbrella for these properties?
Our ______________________________ and _____________________________ are stored and used up in our ______________________________ ______________________________.
8. ______________________________ drives the car owned by ______________________________ both for personal purposes and with respect to the ______________________________ business. We assume our coverage includes business driving both by ______________________________ and by ______________________________ who occasionally drive the car for the business.
9. Can you please confirm that we are covered for our motorcycle being driven by ___________.
10. Is there anything not mentioned above that comes to mind that we should be aware of?
Please send our lawyer, Alan S. Gassman, a copy of your response to this letter, which has been generated as a part of our estate planning. Alan's address is and his street address is 1245 Court Street, Suite 102, Clearwater, Florida His fax number is (727) Please send us a copy of your response as well.
If you have any further suggestions with respect to our coverages please let us know. Thank you very much for your assistance herewith.
Best personal regards,
CLIENT 16

17. New Estate Tax Law Summary17
New Estate Tax Law Summary
2009
2010
2013
What may change.
Annual Exclusion Gifts (Don’t Count at All)
$13,000
$14,000
Will remain the same (with adjustments for inflation)
Tuition and Medical Direct Payment Exemption
Unlimited
Like Before
Will remain the same
Lifetime Exemption
$1,000,000
$5,120,000
$5,250,000
Will remain at $5,250,000
(with adjustments for inflation)
$5,250,000
Estate Tax Exemption
$3,500,000 (less what was used of $1,000,000 above)
Unlimited—See Footnote*
$5,250,000 (less portion of used lifetimes gifting exclusion)
$5,250,000** (less portion of used lifetime gifting exclusion)
Estate Tax Rate
45%
35%
40%
Will remain at 40%
Discounts and Installment Sales/GRAT’s, and Defective Grantor Trusts as Estate Planning Tools (I.E. Defective Grantor Trusts may not automatically be included in the Grantor’s Gross Estate for Estate Tax Purposes)
Available
Available initially (at least, not sure about rest of 2013)
Who knows?
Portability of First Dying Spouse’s $5,250,000 Exemptions No
Yes
Will be continued.
*Although the default is a $5,000,000 exclusion, with a 35% tax rate, an election can be made to have no estate tax apply with respect to decedents dying in 2010, but the income tax “stepped-up” basis is limited for larger estates.
** In addition to the above, the amount that passes estate tax-free ($10,000,000 per couple) will increase with the cost of living beginning in 2012 in $10,000 increments.
***The State Death Tax Credit still does apply. There is a state death tax deduction in 2010 through 2012, and in 2013 and thereafter as present continues to apply.
****Note that exclusion increase does not apply for Non Resident Aliens or future or already existing Qualified Domestic Trusts (QDOT’s) established for Non Resident Alien spouses. They still are subject to a $60,000 estate tax exclusion level for assets subject to US estate tax and need planning as much as ever!

18. PROTECTIVE TRUST LOGISTICAL CHART18
First Dying Spouse’s
Revocable Trust (or possibly a Joint Revocable Trust, if specially designed)
Surviving Spouse’s
Revocable Trust
During both spouse’s lifetimes:
Upon first death in 2013:
$5,250,000*
Remaining Assets
During surviving spouse’s remaining lifetime:
Family
(By-Pass)
Generation Skipping Trust
(Not taxed in surviving spouse’s estate)
QTIP Non-GST Trust
(Marital Deduction Trust that is not generation skipping)
Surviving Spouse’s Revocable Trust
(Will include assets owned jointly on first death)
$5,700,000?*
Remaining Assets
Surviving spouse can have the right to redirect how assets are distributed on second death.
Upon second death:
Generation Skipping Trusts for Children
Children’s Trust (or distributions)
Generation Skipping Trusts for Children
(Will merge with first dying spouse’s Generation Skipping Trusts shown on left)
Children’s Trust (or distributions)
After deaths of both spouses:
Benefits children and grandchildren.
Not estate taxable in their estates.
Benefits children.
Taxable in their estates.
Benefits children and grandchildren.
Not estate taxable in their estates.
Benefits children.
Taxable in their estates.
*Assumes first spouse dies in 2013 and that the surviving spouse dies in a later year when the estate tax exemption has gone up to $5,700,000 (based upon 8.57% cumulative inflation). The estate tax exemption is $5,250,000 for those that die in 2013, and increases with inflation in $10,000 increments.
If the first spouse does not use the entire exemption amount, what remains may be added to the surviving spouse’s allowance under the “portability rules” but will not grow with inflation.

19. Credit Shelter Trusts vs. Relying on Exemption Portability19
A married couple might provide for all assets to go to the surviving spouse,
or to “lock up” up to $5,250,000 on the first death to facilitate a “credit shelter trust.”
SURVIVING SPOUSE INHERITS ALL ASSETS – USE PORTABILITY OF HIS OR HER $5,250,000 EXEMPTION
CREDIT SHELTER TRUST
1. Uses the first dying spouse’s $5,250,000 Generation Skipping Tax exemption (the ability to benefit children without being taxed at their level) – this is lost if portability is used.
1. No preservation of first dying spouse’s GST exemption, although a “reverse QTIP” election may be able to be made in some situations to preserve some of the first dying spouse’s GST exemption.
2. Assets can increase in value, to hopefully outpace inflation
2. No CPI or other value increase after first dying spouse’s death.
3. Better investment opportunities can be channeled to shelter trust assets.
3. Combined assets will be used to pay personal expenses and to hold “wasting assets.”
4. Co-Trusteeship can require conservatism.
4. Surviving spouse may lose or give away the assets in remarriage or otherwise.
5. Can be protected from creditors of the surviving spouse.
5. Not creditor protected.
6. Can borrow money from surviving spouse at the applicable Federal Rate (presently 1.07% for a 9-year Note), and it runs a greater rate of return on its own investment.
6. No ability to leverage with debt or otherwise.

20. 20
Estate Tax to IRS $17,424,581

21. 21
Estate Tax to IRS $4,261,162

22. 22
Estate Tax to IRS $273,810

23. Total Passed to Family $61,472,88423
Lifetime Gifts $6,704,991
Life Ins. Trust (ILIT) Surviving Spouse $5,000,000
Estate Tax to IRS $482,158
Total Passed to Family $61,472,884

24. HAROLD AND CLAUDIA SANDERS TRUST LOGISTICAL CHART24

25. 25
To download a FREE beta copy of the software please visit: We welcome all questions, comments and suggestions.

26. BUYING TERM INSURANCE 26 AGE 30 AGE 35 PREFERRED STANDARD
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$378
$328
$658
$518
$1,548
$1,218
15 Year Term
$458
$398
$768
$688
$1,918
$1,438
20 Year Term
$608
$478
$968
$738
$2,278
$1,638
30 Year Term
$938
$1,518
$3,908
$3,018
AGE 35
$375
$345
$735
$565
$1,685
$1,345
$515
$415
$915
$805
$2,135
$1,775
$665
$1,105
$945
$2,885
$2,265
$1,015
$825
$1,735
$1,375
$4,705
$3,555

27. BUYING TERM INSURANCE 27 AGE 40 AGE 45 PREFERRED STANDARD
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$505
$435
$925
$785
$2,405
$2,005
15 Year Term
$655
$575
$1,215
$1,035
$3,125
$2,485
20 Year Term
$865
$745
$1,505
$1,255
$4,345
$3,185
30 Year Term
$1,495
$1,135
$2,465
$1,985
$7,175
$5,275
AGE 45
PREFERRED
STANDARD
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$805
$705
$1,405
$1,095
$8,935
$3,055
15 Year Term
$1,065
$875
$1,985
$1,445
$5,275
$3,815
20 Year Term
$1,415
$1,105
$2,355
$1,755
$7,195
$4,895
30 Year Term
$1,765
$2,845
$2,825
$11,625
$7,555

28. BUYING TERM INSURANCE 28 AGE 50 AGE 55 AGE 60 PREFERRED STANDARD
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$1,235
$1,025
$2,145
$1,625
$6,435
$4,295
15 Year Term
$1,785
$2,805
$2,065
$7,825
$5,725
20 Year Term
$2,225
$3,425
$2,715
$10,425
$6,865
30 Year Term
$4,025
$2,645
$6,245
$4,785
$13,719
$10,109
AGE 55
$2,025
$1,495
$3,315
$2,235
$8,935
$5,905
$2,895
$1,835
$4,655
$2,985
$12,055
$7,995
$3,505
$2,465
$5,955
$3,985
$14,875
$9,985
Not Available
Not available
AGE 60
PREFERRED
STANDARD
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$3,098
$2,198
$4,808
$3,278
$13,028
$8,308
15 Year Term
$4,488
$3,048
$7,088
$5,218
$17,658
$12,978
20 Year Term
$5,798
$4,078
$9,488
$6,668
$22,048
$15,058
30 Year Term
Not Available

29. Primary Reasons to Rely Upon Portability as Opposed to 29
Primary Reasons to Rely Upon Portability as Opposed to
Full Funding of a Credit Shelter Trust for the Wealthy.
1. Where property that will be eligible for depreciation or may be sold at ordinary rates will likely receive a large step up on the death of the surviving spouse. For example, clients owning a $20,000,000 building subject to $15,000,000 of debt may be best served by assuring that the property will receive a stepped up basis on the surviving spouse’s death, particularly if their family assets are not expected to exceed $10,000,000 in total.
A valuation freeze mechanism may nevertheless be used to help avoid estate tax risk.
2. Where the first dying spouse has significant IRA and pension accounts that constitute the majority of what would be used to fund a Credit Shelter Trust, will the family prefer to have the spousal rollover minimum distribution rules apply on an annually recalculated basis, with no distributions until the surviving spouse has passed age 70 ½?
Planners should also take into account that qualified plan and IRA benefits payable to a credit shelter trust have a net after income tax value that is significantly less than the amounts held under the IRA or qualified plan. Depending upon the life expectancy of the surviving spouse, contemplated payouts, and investment return expectations, portability may be a better alternative than qualified plan funding of a credit shelter trust.
See the attached chart.
3. Do the clients leave everything that would be estate taxable to charity or a charitable foundation?
4. Is there a state inheritance tax situation that would cause payment of taxes on the first death unless portability is used – discussed later in this outline.
NOTE: Update wills to permit the surviving spouse to require the filing of an estate tax return and the making of a portability election.

30. Credit Shelter Trusts vs. Relying on Exemption Portability30
Credit Shelter Trusts vs. Relying on Exemption Portability
A married couple might provide for all assets to go to the surviving spouse,
or to “lock up” up to $5,250,000 on the first death to facilitate a “credit shelter trust.”
SURVIVING SPOUSE INHERITS ALL ASSETS – USE PORTABILITY OF HIS OR HER $5,250,000 EXEMPTION
CREDIT SHELTER TRUST
1. Uses the first dying spouse’s $5,250,000 Generation Skipping Tax exemption (the ability to benefit children without being taxed at their level) – this is lost if portability is used.
1. No preservation of first dying spouse’s GST exemption, although a “reverse QTIP” election may be able to be made in some situations to preserve some of the first dying spouse’s GST exemption.
2. Assets can increase in value, to hopefully outpace inflation
2. No CPI or other value increase after first dying spouse’s death.
3. Better investment opportunities can be channeled to shelter trust assets.
3. Combined assets will be used to pay personal expenses and to hold “wasting assets.”
4. Co-Trusteeship can require conservatism.
4. Surviving spouse may lose or give away the assets in remarriage or otherwise.
5. Can be protected from creditors of the surviving spouse.
5. Not creditor protected.
6. Can borrow money from surviving spouse at the applicable Federal Rate (presently 0.87% for a 9-year Note), and it runs a greater rate of return on its own investment.
6. No ability to leverage with debt or otherwise.

31. Three Choices for Retirement Plan Benefits – May Be Best to Have This Spread Among Two of the Choices – Client Age 75 and Oldest Child Age 50 31
CHOICE #1
CHOICE #2
CHOICE #3
Mrs. Client as Beneficiary
Advantages:
1) Ability to roll over Dr. Client’s retirement plan accounts income tax-free into her own retirement plan account and to take required minimum distributions based upon her life expectancy, recalculated annually, based upon the below percentages of the retirement plan account for the next ten years.
The above referenced distribution percentages are less than what would occur if the retirement plan account was payable to Dr. Client’s Revocable Trust.
2) Mrs. Client has the ability to direct the disposition of the retirement plan funds upon her death, and after Mrs. Client’s death, the required minimum distributions from the retirement plan funds would be based upon the life expectancies of her chosen beneficiaries. The retirement plan funds would be protected from the creditors of these beneficiaries if the funds are paid to trusts for the benefit of such beneficiaries after Mrs. Client’s death.
 Disadvantages:
1) The future value of the retirement plan would be includable in Mrs. Client’s estate for federal estate tax purposes upon her death.
2) The above referenced distribution percentages are greater than what would occur if the retirement plan accounts were disclaimed so that they are payable to the Client ‘sIrrevocable Trust.
2012: %
2013: %
2014: %
2015: %
2016: %
2017: %
2018: %
2019: %
2020: %
Restated and Amended Trust Agreement of Deceased Client’s Revocable Trust
1) The retirement plan accounts can benefit Mrs. Client without being subject to federal estate tax in her estate.
2) Mrs. Client cannot access the retirement plan accounts above the annual required minimum distribution without the consent of the other Co-Trustees, which protects Mrs. Client from any undue influence.
3) The retirement plan benefits would be protected from the creditors of Mrs. Client’s children after her death, except to the extent of any distributions actually made from the Trust to the children.
Disadvantages:
1) Annual required minimum distributions would be based upon Mrs. Client’s life expectancy and a special distribution table that is not recalculated annually, which would be as described below for the next ten years.
The below referenced distribution percentages are greater than what would occur if either of the two other alternatives were chosen.
Thus, by using Mrs. Client’s life expectancy to determine the annual required minimum distributions, the retirement plan benefit distributions cannot be “stretched” out over life expectancies of Mrs. Client’s children after her death.
2) Mrs. Client will have to forfeit her ability to direct the disposition of the retirement plan funds after her death. The retirement plan funds will instead pass in separate trusts for the benefit of Mrs. Client’s children upon her death.
2012: %
2013: %
2014: %
2015: %
2016: %
2017: %
2018: %
2019: %
2020: %
Irrevocable Trust for Children Only
1) The value of the retirement plan accounts would not be includable in Mrs. Client’s estate for federal estate tax purposes upon her death.
2) Annual required minimum distributions of retirement plan benefits would be based upon the life expectancy of the oldest of Mrs. Client’s children and a special distribution table that is not recalculated annually, which would be as described below for the next ten years.
The above referenced distribution percentages are optimal from an income tax planning standpoint, as they are more favorable than the other alternatives because they result is the lowest annual required minimum distributions.
1) Mrs. Client cannot benefit from the retirement plan accounts.
2) Mrs. Client cannot control the disposition of the retirement plan funds upon her death. The retirement plan funds will continue to be held pursuant to the terms of the Trust.
2012: %
2013: %
2014: %
2015: %
2016: %
2017: %
2018: %
2019: %
2020: %

32. CREDIT SHELTER TRUST ALTERNATIVES FOR
CLIENTS WHO WANT FLEXIBILITY IN THEIR PLANNING
Committee to Provide a Power of Appointment. The authors are concerned that if a couple opts to use portability, surviving spouses will not be as well protected as if they had funded a Credit Shelter Trust to benefit the surviving spouse for his or her lifetime. Asking someone who has just lost his or her lifelong spouse to make a significant financial decision within nine months of death by disclaimer, and to also give up the power to appoint how the trust assets will pass by power of appointment, is not an optimal solution. Neither is transferring assets outright to a surviving spouse who may lose them to creditors, divorce claims, or overly aggressive son and daughter-in-laws an ideal option.
The Clayton QTIP strategy typically works well, but the decision must be made on the first dying spouse’s estate tax return, which will be due no later than 15 months after the death of the first spouse, and explaining the mechanism to clients may be challenging.
The authors therefore favor providing a committee of impartial advisors, who have the right to give the surviving spouse a power to appoint the trust assets to creditors of his or her estate. As a result, the surviving spouse will be considered the owner of the assets under the trust for estate tax and income tax step-up basis purposes, even though the power given to the surviving spouse may not be exercisable unless he or she has consent from one or more unrelated parties. If the estate tax is eliminated and a family wants to receive a stepped-up basis on the death of the surviving spouse, then the following clause may be used: 32

33. Determining Best How To Allocate Assets As Between A Married Couple
Part I
General Rules:
Typically want each trust funded with at least $5,250,000 worth of assets on death for estate tax planning.
May be funded from ½ of tenancy by the entireties assets via disclaimer and probate or by life insurance/pension/IRA assets. 33
Wife could be Trustee if Husband is sole grantor (or vice versa)
Trustee other than Husband or Wife
Husband
Wife
Husband’s Revocable Trust
Wife’s Revocable Trust
Gifting Trust (Irrevocable)
Lifetime By-Pass Trust (Irrevocable)
Protected life insurance and annuity contracts “owned by the insured.”
FLORIDA TBE
(Tenancy by the Entireties)
Only exposed to creditors if both spouses owe the creditor, if one spouse dies and the surviving spouse has a creditor, the spouses divorce, or state law or the state of residence changes.
2. On death of one spouse, surviving spouse may disclaim up to ½ (if no creditor is pursuing the deceased spouse) to fund By-Pass Trust on first death.
Safe from creditors of husband but exposed to creditors of wife (Maintain large umbrella liability insurance coverage to protect these assets.)
On wife’s death, can be held under a protective trust, which will continue to be safe from creditors of husband, subsequent spouses, and “future new family.”
Safe from creditors of both spouses.
If divorce occurs, should not be subject to rules for division of property between spouses.
May be controlled by the “entrepreneurial spouse” by using a Family Limited Partnership.
Assets held directly by revocable trust are subject to husband’s creditor claims.
Direct ownership of limited partnership or LLC not in TBE may have charging order protection (meaning that if a creditor obtains a lien on the limited partnership or LLC, the husband cannot receive monies from the limited partnership or LLC without the creditor being paid).
1. Safe from the creditors of the Grantor’s spouse.
2. If funded by one spouse, may benefit other spouse and children during the lifetime of both spouses.
3. Otherwise can be identical to gifting trust pictured to the left.
SEE NEXT PAGE FOR SECOND TIER PLANNING
A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s trust, half to two-thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk” spouse’s trust.

34. Determining Best How To Allocate Assets As Between A Married Couple
Part II
Subsidiary Entity Techniques:
Limited partnerships and LLCs can be used to facilitate discounts, for estate tax purposes, and for charging order protection.
Limited partnerships and LLCs can also be used to provide “firewall protection” from activities or properties owned. 34
Wife could be Trustee if Husband is sole grantor (or vice versa)
Husband
Wife
Trustee other than Husband or Wife
Husband’s Revocable Trust
Wife’s Revocable Trust
Gifting Trust (Irrevocable)
Lifetime By-Pass Trust (Irrevocable)
FLORIDA TBE
(Tenancy by the Entireties)
Assets held directly by revocable trust are subject to husband’s creditor claims.
Direct ownership of limited partnership or LLC not in TBE may have charging order protection (meaning that if a creditor obtains a lien on the limited partnership or LLC, the husband cannot receive monies from the limited partnership or LLC without the creditor being paid).
Only exposed to creditors if both spouses owe the creditor, if one spouse dies and the surviving spouse has a creditor, the spouses divorce, or state law or the state of residence changes.
2. On death of one spouse, surviving spouse may disclaim up to ½ (if no creditor is pursuing the deceased spouse) to fund By-Pass Trust on first death.
Safe from creditors of husband but exposed to creditors of wife (Maintain large umbrella liability insurance coverage to protect these assets.)
On wife’s death, can be held under a protective trust, which will continue to be safe from creditors of husband, subsequent spouses, and “future new family.”
Safe from creditors of both spouses.
If divorce occurs, should not be subject to rules for division of property between spouses.
May be controlled by the “entrepreneurial spouse” by using a Family Limited Partnership.
1. Safe from the creditors of the Grantor’s spouse.
2. If funded by one spouse, may benefit other spouse and children during the lifetime of both spouses.
3. Otherwise can be identical to gifting trust pictured to the left.
97%
96%
100% 3% 1% 3%
Husband, Manager
FLP
FLP
LLC
SECOND TIER PLANNING:
FIREWALL LLC
Leveraged Investment
Property or activity
A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s trust, half to two-thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk” spouse’s trust.

35. 35
DO NOT FORGET ANNUAL GIFTING – IT IS NOW $14,000 PER YEAR, PER DONEE PLUS THE CPI EXEMPTION INCREASE
Consider implementing a gifting program for the $14,000 annual exclusion allowance, plus the $130,000 exemption increase.
Will increased exclusion gifting be done annually, every other year, or at some other regular frequency to avoid having to file gift tax returns every year?
Calendar additional gifts once the gift tax statute of limitations has run on returns filed for large 2011 and 2012 discounted gifts to make use of remaining credit exemption amounts.
Calendar review of possible exercise of powers of appointment?
THE JACK BOGGS RULE:
Is it better to gift every year and file a gift tax return or every other year or every third year – the cost of a gift tax return vs. the cost of losing the time value of money.

36. 36 10 YEAR GIFTING PERIOD – ALLOWING GROWTH THEREAFTER
$14,000 ANNUAL EXCLUSION ALLOWANCE
30% VALUATION DISCOUNT 36
MOVING MORE VALUE OUT OF TAXABLE ESTATES BY USING DISCOUNTED LIMITED PARTNERSHIP OR LLC ANNUAL GIFTING
Year
Reportable Gifting
Cumulative Value with 6% Growth
Gifting Equivalent Amount Applying 30% Discount
Value Added By Discount Phenomenon
40% Estate Tax Savings (40% of Value Added) 1
$14,000.00
$20,000.00
$6,000.00
$2,400.00 2
$28,840.00
$41,200.00
$12,360.00
$4,944.00 3
$44,570.40
$63,672.00
$19,101.60
$7,640.64 4
$61,244.62
$87,492.32
$26,247.70
$10,499.08 5
$78,919.30
$112,741.86
$33,822.56
$13,529.02 6
$97,654.46
$139,506.37
$41,851.91
$16,740.76 7
$117,513.73
$167,876.75
$50,363.03
$20,145.21 8
$138,564.55
$197,949.36
$59,384.81
$23,753.92 9
$160,878.42
$229,826.32
$68,947.90
$27,579.16 10
$184,531.13
$263,615.90
$79,084.77
$31,633.91 11
$0.00
$195,603.00
$279,432.85
$83,829.86
$33,531.94 12
$207,339.18
$296,198.82
$88,859.65
$35,543.86 13
$219,779.53
$313,970.75
$94,191.23
$37,676.49 14
$232,966.30
$332,809.00
$99,842.70
$39,937.08 15
$246,944.28
$352,777.54
$105,833.26
$42,333.30 16
$261,760.93
$373,944.19
$112,183.26
$44,873.30 17
$277,466.59
$396,380.84
$118,914.25
$47,565.70 18
$294,114.58
$420,163.69
$126,049.11
$50,419.64 19
$311,761.46
$445,373.51
$133,612.05
$53,444.82 20
$330,467.15
$472,095.93
$141,628.78
$56,651.51 21
$350,295.18
$500,421.68
$150,126.50
$60,050.60 22
$371,312.89
$530,446.98
$159,134.09
$63,653.64 23
$393,591.66
$562,273.80
$168,682.14
$67,472.86 24
$417,207.16
$596,010.23
$178,803.07
$71,521.23 25
$442,239.59
$631,770.84
$189,531.25
$75,812.50 26
$468,773.96
$669,677.09
$200,903.13
$80,361.25 27
$496,900.40
$709,857.72
$212,957.32
$85,182.93 28
$526,714.43
$752,449.18
$225,734.75
$90,293.90 29
$558,317.29
$797,596.13
$239,278.84
$95,711.54 30
$591,816.33
$845,451.90
$253,635.57
$101,454.23

37. $1,000,000 PROMISSORY NOTE/SCIN/PRIVATE ANNUITY/GRAT
ALTERNATIVES | MAY 2013
CLIENT AGE 73 37
Alternatives: (Using May 2013 Applicable Federal Rates and 7520 Rate)
CLIENT
(AGE 73)
TRUST (PURCHASER)
<3 Year Interest Only Installment .20% - Payment = $2,000 per year*
9 Year Interest Only Installment 1.00% - Payment = $10,000 per year*
>9 Year Interest Only Installment 2.60% - Payment = $26,000 per year*
12 Year Interest Only 6.587% - Payment = $65,866 per year*
Private Annuity Level Annual Payment - Payment = $89,736 per year*
3 Year Level Payment 1.2% - Payment = $339,660 per year*
**3 Year 1.2% - Initial Payment = $280,345 and Increases Annually by 20%
* Notes would have no penalty for prepayment – minimum payments are shown above.
Self-cancelling installment Notes must balloon before life expectancy as measured at time of Note being made. Client’s life expectancy is years under IRS tables.
The SCIN calculations above are based on a 12-year note term.
** This GRAT assumes that each annuity payment will increase by 20% each year.
All GRATs assume a taxable gift of approximately $5, on funding
Note: May 2013 rates for annual compounding are:
Short-Term %
Mid-Term – 1.00% Usable through July 31, 2013
Long-Term – 2.62%

38. 38

39. Limited Liability Trust – Asset Protection Trust39
Limited Liability Trust –
Asset Protection Trust
BETTER THAN AN LLC TO HOLD INVESTMENT PROPERTY IF LIABILITY INSURANCE COVERAGE AND RATES WILL BE BENEFICIAL
SUCH A TRUST MAY ALSO QUALIFY UNDER AN INDIVIDUAL UMBRELLA POLICY, WHEREAS AN LLC MAY NOT
Trust Company in proper jurisdiction = Trustee or Co-Trustee
ASSET PROTECTION TRUST
Benefits mother, father and children.
May be disregarded for income tax purposes.
No tax filing requirements if a domestic asset protection trust jurisdiction is used.
May need to have subsidiary management trust owned 100% by asset protection trust to hold title, to allow parents to have management powers (preferably one parent who does not have other exposed assets).
Mother & Father as contributors
Rental Home(s)

40. Child’s Homestead Irrevocable Trust40
A trust that can own a home used by a child to benefit the spouse and descendants;
- can qualify for the State Homestead Exemption and 3% cap
- can be considered as owned by the Child for income tax purposes to qualify for the $250,000 income tax exemption on sale
- can be controlled by the Trustee and used for the benefit of various family members
- will insulate family members from liabilities associated with ownership of the home
Other Spouse = Trustee
Trust assets can be applied for the health, education, maintenance and support of the Trustee-Spouse and children.
One or more children may reside in the house to qualify for the Florida Tax Homestead Exemption.
For income tax purposes, the Trust can be considered as owned by the child who lives in the house so that the house can be sold income tax free to the extent of up to $250,000 in appreciation.
The Trust will not be subject to creditor claims of any family member unless (1) the transfer to the Trust by the Grantor Spouse is a “fraudulent transfer,” or (2) the child has a right to withdraw more than the gift tax exclusion amount in any calendar year.
NOTE – The Trust must be appropriately drafted, funded, and administered to achieve the above results.
CHILD’S HOMESTEAD IRREVOCABLE TRUST
GRANTOR
SPOUSE
Gift
Home and Other Assets

41. COMPARISON OF METHODS TO PURCHASE HOMES FOR THE CHILDREN41
COMPARISON OF METHODS TO PURCHASE HOMES FOR THE CHILDREN
$250,000 Exemption on Sale of Home
$50,000 Homestead Exemption and 3% Per Year Cap on Valuation
Divorce
Control
Notes
Father and Mother loan money to the child. Child purchases and owns home.
Child gets income tax exemption.
Child gets homestead exemption and cap.
Loan will be repaid to parents. Equity may be subject to claim by spouse if this is not waived by Prenuptial Agreement.
Child controls the house. However, we may be able to call the Note to force a sale.
Note: Child gets equity above Note.
Father and Mother own the home and the child lives in the house.
No.
Generally no. However, it may be possible to obtain these with a 99-year lease.
Better protected.
Father and Mother control.
Via Child Funded Homestead Bypass Trust.
Mother would be Trustee of the Trust and would retain control.
Note: Creditors may be able to get into the Trust. It may be possible for Mother to transfer the house to the child’s individual name in the event of a Creditor issue.
Direct Client Funded Homestead Bypass Trust. No
Note: The $250,000 exemption is lost, but no creditor of the child should be able to get the assets.
One-half purchased by child and one-half owned by Father and Mother.
One-half.
One-half, better protected.
Each controls one-half.

42. QPRT Trust Planning Demonstration
Age of Client 68
Initial Value of Home $860,000
Fractional Discount Assumed %
Discounted Value of ½ of Home $365,500 42
Gift Component (with respect to each QPRT)
Value of ½ of Home at End of QPRT Term Assuming 7% Growth
Estate Tax on Value at End of Term Assuming 35% Estate Tax Rate
Estate Tax Savings on ½ of Home at End of QPRT
Estate Tax Savings on Entire Value of Home at End of QPRT
Estate Tax Savings After 16 Years Assuming 7% Growth on ½ of House
Estate Tax Savings After 16 Years Assuming 7% Growth on Entire House
6 Year QPRT
Gift %
73.220%
$645,314.05
$225,859.92
$132,193.23
$264,386.96
$350,633.96
$701,267.92
Value of Gift
$267,619.00
8 Year QPRT
64.328%
$738,820.06
$258,587.02
$176,295.43
$352,590.85
$362,009.05
$724,018.10
$235,118.84
10 Year QPRT
55.528%
$845,875.08
$296,056.28
$225,022.09
$450,044.17
$373,266.45
$746,532.90
$202,954.84
12 Year QPRT
46.916%
$968,442.38
$338,954.83
$278,937.54
$557,875.08
$384,283.35
$768,566.70
$171,477.98
14 Year QPRT
38.633%
$1,108,769.68
$388,069.39
$338,648.12
$677,296.25
$394,879.38
$789,758.76
$141,203.62
16 Year QPRT
30.840%
$1,269,430.41
$444,300.64
$404,848.70
$809,697.15
$404,848.57
$112,720.20
Probability of Death Before Certain Age
Current Age 68
2 years (70) 4.18% 6 years (74) 14.31% 10 years (78) 27.33% 20 years (88) 68.53%
4 years (72) 8.92% 8 years (76) 20.45% 15 years (83) 47.24%

43. Dynasty Wealth Protection Trust43
Grantor can replace the Trustee at any time and for any reason.
Protected from creditors of Grantor and family members.
Can benefit spouse and descendants as needed for health, education and maintenance.
Per Private Letter Ruling the Grantor may be a discretionary beneficiary of the trust and not have it subject to estate tax in his or her estate. But be very careful on this! The Trust would need to be formed in an asset protection jurisdiction and there is no Revenue Procedure on this.
Should be grandfathered from future legislative restrictions.
May loan money to Grantor.
May own limited partnership or LLC interests that are managed at arm’s-length by the Grantor.
May be subject to income tax at its own bracket, or the Grantor may be subject to income tax on the income of the trust, allowing it to grow income-tax free unless or until desired otherwise. If the Grantor is a beneficiary it must remain a disregarded Grantor Trust.
Trustee
DYNASTY WEALTH PROTECTION TRUST
Assets gifted to trust and growth thereon.
Note: Nevada gets a gold star for having a law that says there cannot be an assumed or an oral agreement between the Grantor and the Trustee of a dynasty trust; because of this, the IRS cannot say that the grantor retains certain control.

44. SETTLOR NOT A BENEFICIARY
Irrevocable Funded Domestic and International Wealth Accumulation Trust Categories: Where Will Your Client Best Fit? 44 A B C
IRREVOCABLE,
COMPLETE GIFT TRUST
SETTLOR NOT A BENEFICIARY
Shielded from
future estate
tax of settlor
IRREVOCABLE
COMPLETE GIFT
TRUST
SETTLOR IS A BENEFICIARY
Shielded from future estate tax of settlor – but in case PLR is not correct – empower a third party to deprive the settlor of distribution rights more than 3 years before the settlor dies – IRC §§ 2035 & 2036
INCOMPLETE GIFT TRUST
Treated as if no gift occurred for federal estate and gift tax purposes – business purpose is wealth preservation for family members.
1. Most Domestic States – Including Florida
A1 Protected from creditors of the settlor, and some but not all of the creditors of the beneficiary.
Exception Creditors:
Support obligations: beneficiary’s child, spouse or former spouse (i.e., FL, CA, NY, NJ)
Person who has provided services for the protection of the beneficiary’s interest in the trust (i.e., FL)
State or U.S. claim empowered by state or federal law (i.e., public support obligations in CA)
Some states have more exceptions, (i.e., criminal restitution in CA, or punitive damages arising from manslaughter or murder in NJ)
Future legislation – What can they get you on next?
NOTE – May benefit spouse but be careful under IRC If spouse is beneficiary cannot toggle off tax defective status unless an adverse party can approve all distributions to spouse.
B1 Will be subject to estate tax under IRC § 2036 because the settlor may be seen as retaining benefit by having the trust pay his/her creditors – Revenue Ruling
C1 If grantor is beneficiary there will be no creditor protection – if grantor is not beneficiary then see A1 for exceptions
Any creditor may be able to reach into the trust (unless the trust flees to another jurisdiction – don’t forget the flee clause)
2. Nevada
A2 Protected from all creditors – subject to 2 year Statute of Limitations
(Much safer – assuming Nevada law applies)
B2 IRC § 2036 should not be an issue if PLR
C2 Same as A2:
All creditors, 2 yr statute
3. Alaska, Delaware, and Wyoming (WY recently passed amendments to Uniform Trust Code
A3 Delaware has a 4 year Statute of Limitations and exceptions for divorcing spouse, alimony and child support, as well as for preexisting torts.
Alaska has a 4 year Statute of Limitations and an exception only for a divorcing spouse.
Wyoming has a 4 year Statute of Limitations and exceptions for child support, property listed on an application to obtain creditor, or for fraudulent transfers.
B3 PLR indicates that Alaska is fine – but ex-spouse creditors can get into a trust and may upset the apple cart under present Alaska law. Only single clients should use Alaska?
Delaware and Wyoming have more exception creditors and may be more susceptible under PLR
C3 Same as A3: Delaware, Alaska, Wyoming have 4 year statutes. Delaware has exceptions for support obligations and preexisting torts. Alaska has an exception only for a divorcing spouse. Wyoming has exceptions for child support, property on an application for creditor, or fraudulent transfer.
4. Offshore – Nevis, Belize, Cook Islands
A4 Completely protected depending on jurisdiction
NOTE: Must remain defective for income tax purposes – cannot toggle off except by moving the trust to the United States.
B4 Should be as good as Nevada – Belize has a 1 day statute
C4 Should work fine as in A4 – no full faith and credit clause or state law jurisdiction concerns.

45. ISLE OF MAN/JERSEY (Channel Island)
WHAT IF YOU DECIDE NOT TO FORM THE TRUST IN YOUR HOME STATE? SHOULD I STAY OR SHOULD I GO? 45
FACTOR
NEVADA
ALASKA
ISLE OF MAN/JERSEY (Channel Island)
NEVIS
BELIZE
Use of Trust Protectors.
New concept
Since the 1700s
Normal
Quality of service.
High
High- time zone difference
British-style/time zone difference
Small town- usually good.
Mayberry RFD
Allows importation with statute of limitations tolling from inception of trust at where it was imported from?
YES if original situs has substantially similar spendthrift laws
YES
The Statute of Elizabeth provides that fraudulent transfers should be void, not subject to any limitation period
Toggling off is possible?
NOT unless there is one or more U.S. beneficiaries
Provides for contingency fee payments? - Number of lawyers
About 10,000 attorneys
About 4,000 attorneys
NO, about 170 attorneys in Isle of Man, and 150 in Jersey
Most lawyers are conflicted
NO, about 100 attorneys
NO, about 150 attorneys
Rule Against Perpetuities
365 years
1,000 years
150 years
Does not apply
Abolished

46. Example of a Husband/Wife Dynasty Trust Arrangement46

47. Defective Grantor Trusts & Disregarded Entities Illustrated Flowchart Summarizing Private Letter Ruling 47

48. PLANNING FOR A DYNASTY TRUST WHERE THE SPOUSE OF THE SETTLOR/CONTRIBUTOR IS A BENEFICIARY - SPECIAL CONSIDERATIONS 48
The settlor’s spouse may be a trustee of the trust. As with all irrevocable trusts, administration should be well documented and according to the trust document.
The settlor’s spouse can have the right to receive amounts as reasonably needed for health, education, maintenance, and support. It is best to provide that any such distributions for the spouse will be made only after taking into account the spouse’s other assets and resources.
Otherwise, consider whether the spouse might be considered to be gifting to the trust if he or she had the right to receive distributions and did not take them.
Alternatively, limit distributions to the spouse by requiring an independent fiduciary to approve them.
Marital Deduction Savings Clause - The settlor’s spouse may be the beneficiary of an outright disposition or General Power of Appointment Marital Trust provision to be funded if total contributions to the trust would otherwise cause gift tax responsibility. Do not use a QTIP trust for this because of the harsh regulations requiring a marital deduction election to be filed for a lifetime QTIP trust gift.
Typically the trust will be disregarded for income tax purposes, so that the settlor can pay the income tax attributable to the trust’s income.
In case the settlor may want to “toggle off” defective grantor trust status (such as by reserving the right to replace trust assets with assets of equal value, and then releasing that right) an adverse party (another substantive beneficiary under the trust) must have the right to approve any distributions to the spouse.
Otherwise the trust will be a defective grantor trust under Internal Revenue Code Section 677, and the settlor will not be able to toggle that off (except by getting divorced!).
The settlor’s spouse may choose to “split the gift” on a gift tax return, which is permitted notwithstanding that the spouse is a beneficiary, so long as it is very unlikely that the spouse will need to receive benefits for health, education, maintenance and support when taking into account the spouse’s other assets and resources. See Private Letter Ruling , William H. Robertson vs. Commissioner, 26 TC 246 (1956), and BNA Portfolios 822-2nd: Estate, Gift and Generation-Skipping Tax Returns and Audits, Section IX.M, and 826-2nd: Life Insurance, Section II.F.
What if the assets used to fund the trust had recently been owned jointly by the settlor and the spouse, or were owned by the spouse and transferred to the settlor, who then transferred them to the trust? Under the Step Transaction Doctrine, the assets and the economic risk associated therewith should be owned and held exclusively by the settlor for a reasonable period of time. In case the IRS argues that the contribution to the trust was really made by the settlor’s spouse (in which event the settlor’s spouse may be subject to federal estate tax under Internal Revenue Code Section 2036(a)(1) - retained life interests), it may be important to have trust language which provides that any trust assets considered as transferred to the trust by the spouse beneficiary will be considered to be held in a separate subtrust of which the spouse will not be a beneficiary.

49. PLANNING FOR A DYNASTY TRUST WHERE THE SPOUSE OF THE SETTLOR/CONTRIBUTOR IS A BENEFICIARY - SPECIAL CONSIDERATIONS 49
7. Should the surviving spouse be given a limited power of appointment to direct how trust assets will pass? The grantor cannot be given this power if a completed gift to the trust is desired, but the spouse can. However, the power should not be exercisable in favor of her personally, her creditors, her estate, or creditors of her estate.
At what point should the power of appointment exist and/or be terminated?
(a) Immediately upon inception of the trust until the death of the surviving spouse?
(b) Only after the death of the settlor until the death of the surviving spouse?
(c) Only unless or until the parties are divorced or either party has a child who is not a beneficiary under the trust?
What would prevent the beneficiary spouse from exercising his or her power of appointment to fund a trust for the donor spouse to allow the ability to receive amounts as needed for health education and maintenance – assuming that there is no pre-existing agreement or obligation for this to happen.
8. Should there be a divorce clause?
Typically where the drafting lawyer is representing both spouses this can be discussed and a joint representation letter can be put into place. It is likely that the judge will consider the trust assets to be for the benefit of the beneficiary spouse, but this will vary from state to state and judge to judge.
If the settlor’s spouse is not a client then consider a clause that will provide that, upon divorce, the beneficiary spouse is no longer a beneficiary, trustee or otherwise entitled under the document.
9. If the trust also provides for health, education, maintenance and support or other payments to descendants, how will the trust be protected from a descendant’s support claims or other items for which state law permits penetration of a trust?
If the trust’s primary beneficiary is your spouse, but your children can reach into it, do you have to worry that one of your children is going to have a nasty divorce and the ex-spouse of a child is going to be able to reach into this trust?
Consider whether there should be a Flee (Cuba) Clause in the trust, or whether the trust should name an independent trust protector or trust protectors with the ability to remove descendant beneficiaries and/or the ability to move the situs of the trust to an appropriately protective jurisdiction.

50. Action Checklist for 2013 Estate and Entity/Asset Structuring Update50
Review the terms of the client’s revocable living trust to maximize credit shelter trust funding. Evaluate what degree of funding on the first death will be necessary in view of portability. Should each spouse have a power of appointment over the revocable trust of the other to obtain a full step-up of all assets on death? Review issues associated therewith. Consider whether to implement a joint trust with full credit shelter trust funding, and possibly a complete stepped-up basis on all joint assets on the first dying spouse’s death. Consider whether to establish a promissory note owed by one spouse to the other’s revocable trust in order to facilitate credit shelter trust funding. Under the OID rules, you have to pay interest or report interest, but it washes on a joint return. Consider an Alaska community property trust. Wealthier spouse may give less wealthy spouse a power to appoint sufficient assets under wealthier spouse’s revocable trust, exercisable on death of less wealthy spouse, to fund a Credit Shelter Trust with assets held under wealthier spouse’s own revocable trust. See Private Letter Ruling

51. Action Checklist for 2013 Estate and Entity/Asset Structuring Update51
Consider strategies to cause a step-up in the income tax basis of assets on the death of a client. Determine whether to restructure entities that would cause a valuation discount on death- it may now be preferable to have no discount and a full stepped-up income tax basis for appreciated assets. Consider amending operating agreements and partnership agreements to reduce or remove the restrictions that generate discounts so that on the death of the grantor the step-up in basis on these assets will be greater. Consider distributing assets out of LLCs or partnerships to the members and partners so gifting trusts established as grantor trusts could possibly get a full step-up in basis on these assets on the death of the grantor. Amend revocable trusts to provide that a committee of “independent fiduciaries” could have the power to bestow a general power of appointment on the surviving spouse to cause a step-up in basis on assets that might not otherwise receive such a step-up. Consider reforming irrevocable trusts previously established by the client for estate tax avoidance purposes to provide the client with a testamentary general power of appointment or another power over the trust assets that would cause them to be included in his gross estate for estate tax purposes in order to cause a step-up in income tax basis on the death of the grantor.

52. Action Checklist for 2013 Estate and Entity/Asset Structuring Update52
Facilitate having Credit Shelter Trust language be flexible to allow trust assets to be includable in the estate of the surviving spouse to get an income tax basis step-up.
Reconsider creditor protection trust planning with the business purpose of funding to complete a gift to take the assets and future growth out of the grantor’s estate, notwithstanding that the grantor may be a discretionary beneficiary.
Consider whether to use a trust sitused in an asset protection jurisdiction (such as Nevada, Alaska, Delaware, Belize or the Cook Islands) to hold assets that presently would only be protected under charging order rules.
Combine effectiveness of an asset protection trust for credit shelter and protection purposes.
Consider implementing a gifting program for the $14,000 annual exclusion allowance, plus the $130,000 exemption increase.
Will increased exclusion gifting be done annually, every other year, or at some other regular frequency to avoid having to file gift tax returns every year?

53. Action Checklist for 2013 Estate and Entity/Asset Structuring Update53
Calendar additional gifts once the gift tax statute of limitations has run on returns filed for large 2011 and 2012 discounted gifts to make use of remaining credit exemption amounts.
Calendar review of possible exercise of powers of appointment?

54. Considering Offshore or Domestic Creditor Protection Trusts
SHOULD I STAY OR SHOULD I GO? 54
FACTOR
NEVADA
ALASKA
ISLE OF MAN/JERSEY (Channel Island)
NEVIS
BELIZE
Asset protection law – Statute of Limitations
See Page 46
Strong/2 years – BUT full faith and credit issue
Strong/4 years – BUT full faith and credit issue
No statutory limitation on fraudulent transfer – unless import law of jurisdiction of a Co-Trustee
Strong/2 years
Strong/1 day statute!
Approximate minimal cost to open trust and annual fees.
$250 to open
$1,500 per year thereafter
$750 to open
$3,000 per year thereafter
$1,600 to open
$1,600 - $3,300 per year thereafter
$1,750 min to open
$2,500-$5,000 per year thereafter depending on value of trust
$700 fee to register;
$1,100 - $2,300 per year thereafter
Risk of theft.
Very low.
Should be very low.
Low, if you use a safe trust company.
Not sure.
Use of subsidiary entities permitted- settlor can be Manager of entity.
YES
Reputation with US courts.
Does the judge gamble?
Does the judge like cruises?
Does the judge know European history?
Does the judge like Four Seasons Hotels or Alexander Hamilton (born there).
Has the judge read SEC v. Banner Fund International, or like barrier reefs?
Commonality of use of Swiss or Bermuda depositories.
New concept
Not common
Common in these islands for centuries
Common

55. Considering Offshore or Domestic Creditor Protection Trusts
SHOULD I STAY OR SHOULD I GO? 55
FACTOR
NEVADA
ALASKA
ISLE OF MAN/JERSEY (Channel Island)
NEVIS
BELIZE
Use of Trust Protectors.
New concept
Since the 1700s
Normal
Quality of service.
High
High- time zone difference
British-style/time zone difference
Small town- usually good.
Mayberry RFD
Allows importation with statute of limitations tolling from inception of trust at where it was imported from?
YES if original situs has substantially similar spendthrift laws
YES
The Statute of Elizabeth provides that fraudulent transfers should be void, not subject to any limitation period
Toggling off is possible?
NOT unless there is one or more U.S. beneficiaries
Provides for contingency fee payments? - Number of lawyers
About 10,000 attorneys
About 4,000 attorneys
NO, about 170 attorneys in Isle of Man, and 150 in Jersey
Most lawyers are conflicted
NO, about 100 attorneys
NO, about 150 attorneys
Rule Against Perpetuities
365 years
1,000 years
150 years
Does not apply
Abolished

56. 56
A Matter of Opinion – Reasonable Minds Will Differ HOUSE OF BRICKS/HOUSE OF STICKS/SOAP ON A ROPE
HOUSE OF BRICKS
HOUSE OF STICKS
HOUSE OF STRAW
FORGET IT
SOAP ON A ROPE
(PRISON)
Offshore trust in a top offshore jurisdiction?
Domestic in a top domestic jurisdiction?
Trustee controlled
Most assets under an LLC or partnership controlled by client.
Client as co-trustee and/or loosely managed LLC or partnership
Small percentage of personal assets
50% of personal assets
The majority of assets
Business purpose besides creditor protection
Creditor protection is the sole purpose
Creditor protection is the primary purpose and last minute/domestic
No benefits paid or derived by settlor
Occasional benefits in unexpected situations or expected future retirement benefits
Significant continuing benefits
Debit card
Fully reported for all tax and disclosure purposes
Reasonable attempts to comply with reporting purposes
Haphazard reporting
Intentional non-reporting
Intentional failure to report income
Disclosure on financial statements and otherwise
No one is misled over the arrangement
No one is intentionally misled over the arrangement
Has intentionally misled creditors (may be a crime)
Has intentionally misled a court or the Internal Revenue Service

57. OFFSHORE TRUST – TICKING TIME BOMBS57
OFFSHORE TRUST – TICKING TIME BOMBS
Not reporting the trust and trust activities on a Form 3520, upon inception, Form 3520A each year thereafter, TD F (FBAR) forms annually, and compliance with FATCA (Foreign Account Tax Compliance Act) reporting requirements.
Not reporting trust income or not reporting income that goes into the trust.
Being dishonest with any potential creditor, the IRS or any taxing authority with respect to the trust or its underlying operations.
Not reporting the funding of the trust as a completed gift for gift tax purposes if the grantor has not retained a power with respect to the trust that would cause its funding to be an incomplete gift (such as the testamentary power to appoint trust assets) even if the trust will be subject to estate tax by reason of such power.
Failure to provide that upon death, any marital deduction devise must override any discretionary power of the trustee or trust protectors to deprive the grantor’s spouse of sole lifetime beneficiary/QTIP trust or outright payment rights.
Getting the trust assets stolen by the trustee.
Being dishonest with any court with respect to the trust or its operations.

58. Do Domestic Asset Protection Trusts Work?58
Do Domestic Asset Protection Trusts Work?
Nevada, Alaska and Delaware have asset protection trust statutes. But the Full Faith and Credit Clause of the U.S. Constitution provides that a judgment issued by the court in one state will be respected by the court in other states.
There are many questions regarding the effectiveness of domestic APTs. The case law is not yet fully developed on the question of whether the law of a foreign jurisdiction will apply for the determination of whether a creditor protection trust will shield trust assets from creditors of the grantor who is also a beneficiary.
Hanson v. Denckla, 357 U.S – the law of the state where the trust administration occurs will be determinative.
In re Portnoy, 201 B.R. 685 (Bankr. S.D.N.Y. 1996) and In re Brooks, 217 B.R. 98 (Bankr. D. Conn. 1998) – assets placed in offshore APTs were not excluded from the debtor’s Bankruptcy estates.

59. 59
Avoid Theft
It is vital that clients utilize reputable trust companies and structures that assure that the assets they place under an APT will not be stolen.
Sometimes two trust companies from different jurisdictions will serve as Co-Trustees under the trust agreement, or a lawyer or other fiduciary may serve so that two signatures and collusion would be required before monies held in an offshore account could ever be stolen.
Some jurisdictions, like the Isle of Man and Jersey in the Channel Islands allow for the law of a co-trustee’s jurisdiction to apply.
There are many well funded and reputable trust companies in the Isle of Man and Jersey willing to serve as managing Co-Trustee of APT formed under the laws of a more recognized APT jurisdiction.

60. “It wasn’t raining when Noah built the ark.”60
“It wasn’t raining when Noah built the ark.”

61. QUESTIONS FOR YOU BEFORE WE GET STARTED61
1. Are your clients getting the best estate plan you can put together for them?
Or is it just the same old form time after time built on a low budget?
2. Do your clients understand what they need to know to appreciate the plan you design for them?
Or are you rushed through a free consult to try to land them in an economy plus estate plan?
3. Do you have a clear understanding f the client’s assets, liabilities, titling, income, plans and aspirations?
4. Have you run the numbers on estate tax and capital gains tax exposures, taking the time value of money into account?
What about the Medicare 3.8% tax?
5. Are you also planning for the client’s parents as to inheritances that might be received, or assistance that may be needed?

62. QUESTIONS FOR YOU BEFORE WE GET STARTED62
6. Have you taken into account the possibility of an ugly divorce, incapacity, law suits against each person involved?
7. Have you looked at creditor protection for each person in the plan and after each event in the plan?
TBE might work great, but not after one spouse dies.
Inheritances might pass in a creditor proof manner to an irrevocable trust, but what if a beneficiary’s ex-spouse or the parent of a beneficiary’s child tries to invade the trust which is permitted under Florida Statute Section (exception creditors).
8. Have you coordinated with the other professionals on the team, including the CPA, financial planners, liability insurance people and others?
9. Have you made sure that the client has plenty of insurance for life, health, casualty, disability and umbrella coverage and that gaps are plugged?

63. QUESTIONS FOR YOU BEFORE WE GET STARTED63
10. Have you covered the common mistakes, like:
a. Joint accounts that are not TBE.
b. Joint assets that are not TBE.
c. Operating Agreements with provisions that obliterate an S election or charging order protection.
d. Thinking that revocable trusts shield from creditors or Medicaid.
e. Thinking that S corporations do not shield from liability.
f. Thinking that professional practices have to be owned by licensed professionals (except dentists, optometrists, chiropractors and lawyers).
g. Thinking that you cannot get a full step-up for joint assets owned by a married couple or under one spouse’s revocable trust?

64. QUESTIONS FOR YOU BEFORE WE GET STARTED64
h. Thinking that the client has charging order protection when they do not.
i. Thinking that charging order protection is great protection.
j. The always forgotten beneficiary designation.
k. Titling mistakes - a great reason to have a family limited partnership or an LLC and then put the right things in it.
l. Do not put a liability causing asset into an LLC or family limited partnership that has other valuable assets - watch the capital call and indemnification provisions.
m. How do you prevent an offshore depository or even a U.S. depository from stealing or being the next Bernie Madoff?
n. Is the client being overcharged or churned in their investments? Do they know what their investment costs are?

65. QUESTIONS FOR YOU BEFORE WE GET STARTED65
o. TBE is not a panacea or paregoric.
The repairman who fell down because he was scared by the joint dog.
The motorcycle rider killed by the dog.
p. Liability, liability, liability
How are we situated if Grandpa gives son half ownership of the car and then
backs it up over a neighbor?
You are responsible for anything your partners do.
You are responsible for anything your employees do.
Most dangerously of all, you are responsible for anything you do.
The $41 million dollar tick.

66. QUESTIONS FOR YOU BEFORE WE GET STARTED66
QUESTIONS FOR YOU BEFORE WE GET STARTED
11. Using special techniques for special clients, like:
a. Annuities and life insurance private placement.
b. Stretch IRA’s.
c. QPRT’s.
d. GRAT’s.
e. Installment sales and private annuity sales.
The missed Self-Cancelling Installment Note or Private Annuity opportunity.
Being assertive and not beating around the bush with clients who have serious illnesses.
f. FLP’s.

67. QUESTIONS FOR YOU BEFORE WE GET STARTED67
g. Out of state trusts
h. Offshore trusts
i. Lifetime QPRT’s
j. Irrevocable Life Insurance Trusts
k. The right type of Buy-Sell Agreement
12. Are you customizing trust documents like you would customize your own?
Special Clauses for Trust Agreements
Not all trusts are created equal.
While the trust agreements that we typically prepare for clients have a number of clauses that give instructions to trustees on how and when to determine what income, support, and principal payments should be made to beneficiaries, different clients have different views and preferences. Here is a list of questions and approaches that can be considered in trust design and implementation.
1. Whether to let the beneficiary of a particular trust have a voice as co-trustee or the ability to replace any acting trustee with a licensed trust company or other trustworthy trustee or advisor.

68. 2. Whether to require that the beneficiary would have a prenuptial agreement or a post-nuptial agreement before being able to inherit from a trust or to receive any significant benefits or to have control.
3. Whether there should be a monthly or annual distribution amount guideline that would be presumed to be the maximum that a person should receive, the minimum that a person should receive, or a provision that gives a minimum and a maximum that can be changed with the Consumer Price Index.
4. Whether young beneficiaries should be required to finish a four year degree, a post-undergraduate degree, work full time, have a profession, or be a full time homemaker with children before being able to receive any significant benefits.
5. Whether a beneficiary should have an “incentive clause” where the trust would pay minimal benefits except to match W-2 or other professional or entrepreneurial earnings or pay an hourly rate based upon actual hours worked by the beneficiary in any notable endeavor.
6. Whether individuals who may have tendencies towards alcoholism, drug abuse, gambling problems, or other addictions should have separate guidelines and standards.
7. Whether any spouse or a long time spouse should have the ability to be:
(a) Added as a beneficiary after a certain number of years of consecutive marriage;
(b) To serve as a trustee for the benefit of descendants if that spouse will not be a beneficiary
(or if he or she will).
8. Whether the beneficiary should have the power to appoint some portion of the assets upon death to a class of persons, or entities, which can include your descendants, or certain qualified charitable organizations. 68

69. 16. Following up for review. 69
9. Whether the beneficiary should have a power to appoint some portion of the assets upon death to a trust that could benefit the long term spouse and would then eventually be devised to the descendants upon his or her death, or upon his or her re-marriage.
10. Whether a beneficiary will be able to receive a percentage or other specified portion of the trust assets for use in business, or entrepreneurial endeavors if the Trustee deems appropriate.
11. Whether a Trust Protector Committee should be appointed, with the power to change the trust language or to direct the trustees as to certain matters or parameters. This is also known as a “King Solomon Clause.”
16. Following up for review. 69

70. Buy/Sell Agreement Arrangements70
Chapter 24 of the book entitled “Creditor Protection for Florida Physicians: A Comprehensive Handbook for Physicians and Their Advisors” by Alan S. Gassman, Esq. provides an in-depth discussion of Buy/Sell Agreement Arrangements. Below please find Chapter 24. Buy/Sell Agreements are an essential component of creditor protection and wealth conservation planning for anyone who has partners or fellow shareholders in a significant practice or investment company. This is discussed in Chapter 25 (“The Biggest Mistakes Doctors Make”) under the category of Failure of Multiple Physician-Owned Practices to Have Appropriate Buy-Sell and/or Shareholder Agreements in Place. Creditors can be prevented from taking over ownership of corporate interests, or may be bought out at a relatively low value, if Shareholder or Operating Agreements and ownership certificates are appropriately handled. The design and implementation of Buy/Sell Agreements can also have a very significant impact upon creditor and wealth preservation planning, and we commonly see significant mistakes made in the design and drafting of such agreements and with respect to the ownership and maintenance of life insurance and disability buy-out insurance that has been purchased with hard earned money. There are several different kinds of Buy/Sell Agreements for physician practices and investment arrangements, and these are commonly set forth in a “Shareholder Agreement”, “Buy/Sell Agreement”, or an “Operating Agreement”. The terminology of the name or names of agreements that provide buy-in and buy-out arrangements vary significantly, and important provisions associated therewith may be found under corporate by-laws, employment agreements, severance pay agreements, and other legal documents. A Logical Guide to Selecting a Buy/Sell Agreement Arrangements “A Logical Guide to Selecting a Buy/Sell Agreement Arrangement: Traditional Choices are Not Always the Best” written by Alan S. Gassman, Copyright © Entity Redemption Arrangements. The company owns the life insurance policy and is the beneficiary thereof. Upon receipt of the life insurance proceeds, the company is to use such proceeds to buy out the deceased owner. Will there be enough money to (a) buy out the deceased owner and (b) have the deceased owner released from any and all guarantees and obligations associated with the business? (a) If it is not practical to have the deceased owner released for contractual or other reasons, should the part of the life insurance proceeds that would otherwise be kept by the company as key man insurance be escrowed pending satisfaction or releases of any and all guarantees that the deceased owner may have responsibility for. (b) How can the deceased owner’s family be sure that the monies received from the life insurance policy will actually be used to satisfy contractual buy-out agreements?

71. Buy/Sell Agreement Arrangements71
(c) What if the company claims that for some reason the agreement is not enforceable or that there are claims against the deceased owner that offset what would be paid to him or her? (d) What if the company has a major creditor claim against it (what if the deceased owner died in a car accident that he or she caused while driving a company vehicle and the company is now being sued by others who died in the accident?) (e) What if the company goes into bankruptcy and the family of the deceased owner becomes just another creditor in a bankruptcy proceeding? (f) For income tax purposes the remaining shareholders do not get a stepped up basis for the stock purchased. The stock simply becomes treasury stock. 2. Cross Purchase Agreements can be considered to avoid the above potential problems. Each owner may own the policy or policies on the other owners. Thus the policy proceeds should be protected from creditors of the company. Also, each purchasing shareholder will get a tax basis in the purchased stock equal to the purchase price thereof. (a) However, policy proceeds will not be protected from creditors of the surviving owner who would receive policy proceeds. (b) Also, contractual disputes could result in the surviving owner using the funds for other purposes while litigating over the obligation to pay and becoming insolvent. (c) Further if there are more than 2 shareholders, then on the death of one owner the policies owned on the others would need to be transferred to rebalance between them, thus causing issues under the transfer for value rules. For example, if there are 4 equal shareholders there have to be 4 polices each owned 1/3rd each by each 3 shareholders on the fourth, and if one leaves the company the remaining 3 policies have to be readjusted as to ownership. Under the transfer for value rules this could cause the proceeds of a life insurance policy to be subject to income tax when the insured person dies. 3. Hybrids of the Above Types of Agreements. Consider a Trusteed Corporate or Cross-Purchase Agreement. Under these arrangements the owner and beneficiary of the policy can be a trust company, a law firm, or another trusted institution as trustee for the benefit of the company in a Trusteed Redemption arrangement, or for the benefit of the other shareholder or shareholders in a Trusteed Cross-Purchase arrangement. The trust agreement can require that the policy proceeds be held safely until sale and used solely for redemption or cross-purchase purposes. This at least assures the surviving family that the life insurance proceeds will not be absconded with. Generally for tax purposes the policy needs to be considered as owned and payable to the company in a redemption arrangement, or to the surviving owner or owners in a cross- purchase agreement. Could a state court or a bankruptcy court override the trust agreement where there are creditors of the entity in a redemption arrangement, or creditors of the remaining shareholders in a cross-purchase arrangement?

72. Buy/Sell Agreement Arrangements72
There would be a purchase price tax basis for the other shareholders if the Trustee is appropriately characterized as an agent for the other shareholders. 4. The Optimal Solution: Use of a Related Partnership to Facilitate Purchase. Because of the above concerns, oftentimes a separate limited partnership or limited liability company is established to own and facilitate the life insurance buy-out arrangement. This entity will be taxed as a partnership to avoid the transfer for value rules that would otherwise be problematic if there are more than 2 owners and shifts of ownership in the policy would apply if there was a redemption arrangement. The transfer for value rules do not apply when there is a reapportionment of entitlement to the proceeds of life insurance for use in a Buy/Sell arrangement between partners under a federal tax partnership. The partnership may have an additional investment besides the life insurance to help assure that it is recognized as a partnership for federal income tax purposes. If the separate partnership is purchasing the interest in the entity on behalf of its surviving partners, who are the surviving owners of the operating entity, then a creditor of the company would have no claim against the policy proceeds, and a creditor of an individual “partner” in the partnership entity might have a claim against the member or partnership interest of the individual partner, but this would not permit the creditor to reach into the partnership to have a claim against the policy proceeds if appropriate charging order protection applies. The above strategy was blessed by the IRS in Private Letter Ruling , which discussed having term insurance held under an LLC taxed as a partnership to facilitate the Buy- Sell arrangement. Under this Private Letter Ruling the manager of the LLC was a trust company that was required to use monies contributed to the LLC to purchase and maintain life insurance to fund a separate cross-purchased Buy-Sell agreement between three related shareholders. It would be possible to have permanent life insurance and to have special allocations of entitlement as to policy values under an LLC/partnership agreement. See The Advanced Tax Planner Volume 5, Issue #1 May-June 2008 at and the ING publication entitled Buy-Sell Planning Using Life Insurance/Buy-Sell Arrangements Using a General Partnership.