1. Decanting a Trust
Brian Simmons, CFP®, Senior Vice President, Trust Officer

2. About Premier Trust Advisor-Friendly Nevada Trustee
Ladenburg Thalmann subsidiary
Highland sister company
40+ Employees
Administer over 3,000 Trusts
Average Trust Size = $750,000 -$1 million
Over $1 billion in assets under administration

3. Decanting

4. Irrevocable I can’t change my trust???
How could I have anticipated my children having drug and divorce problems?

5. Decanting de·cant (d -k nt ) tr.v. de·cant·ed, de·cant·ing, de·cants
To pour off (wine, for example) without disturbing the sediment.
To pour (a liquid) from one container into another.

6. Decanting a Trust
Just as you can decant wine by pouring it from its original bottle into a new bottle, leaving the unwanted sediment in the original bottle, you can pour the assets from one trust into a new trust, leaving the unwanted terms in the original trust.

7. Common Reasons to Decant
Extending the term of the trust
Changing a support trust into a discretionary trust
Correcting drafting error or ambiguous terms
Changing the governing law of the trust
Modifying powers of appointment
Take out outright distributions
No HEMS – Kloiber, Garretson, statutory exception creditors for HEMS (California)
No clarification on who can be trustee; drug testing language
Change state
To grant power of appointment; give bene power to appoint assets at their death or give bene general POA to get step up in basis

8. Common Reasons to Decant
Changing trustee provisions
Combining trusts for greater efficiencies
Separating trusts
Creating a special needs trust
Qualifying a trust to own S-Corp stock
6. No longer require institution that does not exist. Bifurcate trustee roles
7. If trust(s) do not have merger language
8. Get rid of pot trust
9. If trust does not already have special needs language
10. Partial decanting to new QSST or ESBT of S-Corp stock (QSST – has one bene and passes out all income) (ESBT – can have multiple benes and accumulate income but gets taxed at highest bracket).

9. Why Nevada? Top rated asset protection laws
No Nevada state income tax on trust income
If trustee is sited in Nevada
Nevada Trusts can last for 365 years
Top-tier decanting statute
Nevada charging order only
Affords greater creditor protection

10. Why Premier Trust? Founded in 2001
Largest
Advisor-Friendly Trust Company in NV
Trust Administration ONLY
No Investment Management
No Insurance Sales
Access to NV Trust Friendly Laws
Client Retains Team of Professionals
No Account
Minimum

11. Contact Information

12. Asset Protection Trust
Benefits
Asset protection
Plan for future generations
Flexible
Drawbacks
Give up 100% right to access to funds
Distribution Trustee
Client cannot pledge assets as collateral or use for personal guarantee
No income tax or estate/transfer tax savings
Two year waiting period for protection
Only if creditor can prove transfer was intended to hinder, delay or defraud that creditor
Nevada – shorter than most other jurisdictions
Additional notes
In Nevada client can be Investment Advisor and direct investments
Quick implementation
Spendthrift provision
Flexible – testamentary POA. Can keep testamentary POA because assets includable in estate.
16 jurisdictions allow these
Bullet proof vest
Hybrid DAPT
Trust Protector with power to add grantor back as discretionary beneficiary if needed
Define spouse – floating spouse
LLCs as asset – charging order protection. Some protection during 2-year period
No equitable remedy
Force a settlement
If a creditor, trust pays expenses for beneficiary but does not make outright distributions
NRS 166

13. Nevada Incomplete Gift Non-Grantor (NING)
Benefits
Asset protection
Potential state income tax savings
Plan for future generations
Drawbacks
Grantor cannot be Investment Trustee
Need Investment Trustee outside of state where grantor resides
In a state that does not impose income tax on resident fiduciaries
No estate/transfer tax savings
Not all states will recognize trust as non-grantor (Example: New York)
Power of Appointment or Distribution Committee made of adverse third parties
Additional notes
Should be set up in advance of a potential sale that will result in gain
Should sell stock in company not assets
Rich person’s Roth IRA – from state income tax perspective
After tax dollars in
Growth is tax deferred
Client moves to a non-state income tax jurisdiction – growth comes out tax free
Non-Grantor
Distribution Committee comprised of adverse third parties
IRC § 672(a)
Incomplete Gift
Testamentary non-general Power of Attorney
CCA – testamentary POA makes transfer incomplete with respect to remainder interest but not lead income interest
Non-fiduciary intervivos special POA for HEMS
Only Nevada and Alaska – do not subject assets to creditors
Exception to grantor trust rules
Nevada – no exception creditors

14. Intentionally Defective Grantor Trust (IDGT)
Benefits
Asset protection
Estate tax savings
Plan for multiple generations
Up to 365 years in Nevada
Drawbacks
Client is typically not a beneficiary
Client is typically not a trustee
Typically use up client’s exemption
No step-up in basis at death
Additional notes
Estate tax burn
Can engage in installment sales without income tax consequences
Grantor can swap assets with trust
“Dynasty Trust”
If client is trustee, assets may be includable in estate
Typical a grantor trust. Income tax burn is essentially a “tax free” gift to trust.
Sale for installment note is ignored for income tax purposes. Because of grantor trust status, it is as if grantor sold the asset to themselves.
Leverage exemption.
$5mm gift to trust can substantiate a $45mm sale.
Grantor can swap low basis asset for high basis asset prior to death. Low basis asset back in the estate – gets step-up

15. Beneficiary Defective Inheritor’s Trust (BDIT)
Benefits
Asset Protection
Potential estate/transfer tax savings
Plan for future generations
Drawbacks
No income tax savings
Business need to be cash flowing
Complexity
Valuation
Guarantee
Need a “figure head” grantor
Willing to fund trust with initial seed money
Additional notes
Beneficiary can be Investment Advisor and direct investments
Shoot down IRS arguments
Client is their own family trustee except:
Transactions between trust and a business that the client is involved in
3rd party trustee maintains discretion over transactions with business
Also over life insurance to keep death benefit out of estate
Arms length transaction – valuation, sale for full consideration
Guarantee fee
Opportunity shifting – doesn’t have to be an existing business. Client can set up and start a business in BDIT
Bill Gates example

16. Decanting – The “Do-Over” Trust
Benefits
Modify an existing irrevocable trust
Reasons to decant
Drawbacks
Paperwork
Potenital beneficiary issues
Additional notes
Do not require beneficiaries to agree to the decanting
Potential gift tax issue
Process – Become trustee of old, trustee of new, change situs of old to Nevada, distribute assets from the old to the new
Reasons to decant
Extend term of trust – get rid of mandatory distributions
Change a support trust to discretionary – Castleberry, Garretson, Pfannenstiehl
Accelerate a future beneficiary’s interest
Get rid of mandatory income distribution
Indirectly add a beneficiary – Testamentary POA
Correcting drafting errors or ambiguous terms
Change the governing law
Modify powers of appointment
Changing trustee provisions
Combining trusts
Separating trusts
Creating a special needs trust
Qualifying trust to own S-corp stock
Beneficiary consent
NRS

17. State Income Tax Planning Is Client a Beneficiary?
Comparison
Type Of Trust
Asset Protection
Transfer Tax Planning
State Income Tax Planning
Is Client a Beneficiary?
APT
Yes No
Maybe
NING
Yes+Others
IDGT
BDIT