1. THE ALASKA TRUST ACT How to Protect Assets from Lawsuits and Estate Taxes Arthur J. Pauly, Jr. 1-800-655-3113

2. Estate Planning Definition n I want to control my property while I am alive, n take care of myself and my loved ones if I become disabled, n and give what I have to whom I want, the way I want, and when I want; n and, if I can, I want to save every last tax dollar, professional fee, and court cost possible. © The Jackson Group, LLC

3. The Planning Pyramid ME / US FAMILY WEALTH PRESERVATION WEALTHEXPANSION SAVETAXES © The Jackson Group, LLC

4. ©Stan Miller 1998 Abolition of the Rule Against Perpetuities Major Changes of the Law in Alaska if all or part of the income of principal of the trust may be distributed when the trust is created.

5. ©Stan Miller 1998 Allows the trusts’ creator to direct that a beneficiary’s interest can’t be attached by creditors. Major Changes of the Law in Alaska

6. ©Stan Miller 1998 Applies even if the grantor is a beneficiary!! Major Changes of the Law

7. ©Stan Miller 1998 1. To extent grantor retains power to revoke or terminate trust. 2. To extent income or principal must be distributed to grantor. 3. To extent grantor is 30 days or more in default on child support payments. 4. To extent transfer was intended to hinder, delay, or defraud creditors. 4 Exceptions to Spendthrift Protection:

8. ©Stan Miller 1998 However, action claiming that a transfer was fraudulent may not be commenced unless: 1) if claimant was a creditor when trust was created, suit must be brought within 4 years after transfer or one year after trust is or should have been discovered, the later of; or 2) if claimant became creditor after creation of trust, within 4 years of transfer Fraudulent Conveyance

9. ©Stan Miller 1998 1. Some trust asset is “deposited” in Alaska. Deposited in Alaska means holding some asset in a checking account, time deposit, CD, brokerage account, trust company fiduciary account or other similar account. An “Alaskan” Trust if:

10. ©Stan Miller 1998 2. The trust assets deposited in Alaska must be administered by a “qualified person” which is an Alaskan domiciliary or an Alaska trust company or bank. An “Alaskan” Trust if:

11. ©Stan Miller 1998 3. Alaskan Trustee’s duties must at least include an obligation to maintain records for the trust and an obligation to prepare or arrange for the preparation of the trust’s income tax returns. An “Alaskan” Trust if:

12. ©Stan Miller 1998 4. Part of the administration must occur in Alaska. An “Alaskan” Trust if:

13. ©Stan Miller 1998 In the United States, a transfer in trust for the benefit of the transferor is void as against his or her creditors, regardless of whether their claims arise before or after the transfer. As a General Rule

14. ©Stan Miller 1998 Some states have provided statutory exemptions for interests, such as in IRA or other “pension” arrangements. Exceptions to the Rule

15. ©Stan Miller 1998 A few cases have indicated that a grantor’s interest, at least if it is discretionary, cannot be attached by his or her creditors if it is a spendthrift trust. See: Estate of Uhl, 241 F.2d 867 (7th Cir. 1957)(Indiana law); Herzog v. CIR, 116 F.2d 591 (2d Cir. 1941)(New York law); Estate of German, 85-1 USTC 13,610 (Maryland law) Exceptions to the Rule

16. ©Stan Miller 1998 Estate tax reduction and protection of assets from creditors are usually complementary goals. Estate Planning and Alaska Trusts

17. ©Stan Miller 1998 Life Transfers are usually more effective than transfers made at death. Some life transfers include: Annual exclusion gifts Early use of Unified Credit Early use of GSTT Exemption GRATs, GRUTs, GRITs CLTs Other leveraged gifts Estate Planning and Alaska Trusts

18. ©Stan Miller 1998 Gifts are complete, as a general rule, only when not subject to claims of the donor’s creditors. Estate Planning and Alaska Trusts

19. ©Stan Miller 1998 Gifts are complete, as a general rule, only when not subject to claims of the donor’s creditors. If grantor’s creditors can reach trust assets, then the transfer is not a completed gift and the assets are includable in the grantor’s estate. Estate Planning and Alaska Trusts

20. ©Stan Miller 1998 But, “[i]f and when the grantor’s dominion and control of the trust assets ceases, such as by the Trustee’s decision to move the situs of the trust to a state where the grantor’s creditors cannot reach the trust assets, then the gift is complete for Federal gift tax purposes... “ -Rev. Rul. 76-103 This should now be true for Alaska trusts, except where transfer was fraudulent. Estate Planning and Alaska Trusts

21. ©Stan Miller 1998 Gift Tax Annual Exclusion Trusts (Crummey Trusts) where the grantor is eligible (not entitled) to receive distributions in the Trustee’s discretion. Examples of Estate Planning Strategies using Alaska Trusts:

22. ©Stan Miller 1998 Annual Exclusion Trusts or other trusts funded with life insurance contracts where the grantor is eligible (not entitled) to receive distributions in the Trustee’s discretion. Examples of Estate Planning Strategies using Alaska Trusts:

23. ©Stan Miller 1998 Gift tax exemption ($625,000) trust where the grantor is eligible (not entitled) to receive distributions in the Trustee’s discretion. Examples of Estate Planning Strategies using Alaska Trusts:

24. ©Stan Miller 1998 GSTT exemption ($1,000,000) trust where the grantor is eligible (not entitled) to receive distributions in the Trustee’s discretion. Examples of Estate Planning Strategies using Alaska Trusts:

25. ©Stan Miller 1998 Remainder of Charitable Lead Trust where the grantor is eligible (not entitled) to receive distributions in the Trustee’s discretion. Examples of Estate Planning Strategies using Alaska Trusts:

26. ©Stan Miller 1998 The Grantor should not expect to get the income from the property at the commencement of the trust and continuously thereafter. The trust should be used for emergency use only. Some Additional Thoughts:

27. ©Stan Miller 1998 Funding the trust with interests in a family holding company or family limited partnership which is a pass-through entity for income tax purposes is an excellent strategy. Discounts Continued Control through General Partner Income tax liability of creditor (Rev. Rul 77-137) Some Additional Thoughts:

28. Family Limited Partnerships “FLPs” n Keep Control of Assets n Make Gifts of Limited Partnership Interests instead of Assets n Substantially reduce Federal Estate Taxes n Spread Income to Lower Bracket family members n Asset Protection from Creditors © The Jackson Group, LLC

29. Family Limited Partnerships “FLPs” Family Limited Partnership General Partner HusbandWife Child’s Trust 99% owner 1% owner = 100% control © The Jackson Group, LLC

30. Family Limited Partnerships “FLPs” What is a limited partnership interest worth? n Can’t be easily sold or transferred n Can’t be pledged n Limited Partners can’t demand distributions n Income tax attributed to partners, even if no distributions made (“Phantom Income”) Fair Market Value of Limited Partner share is substantially less than the value of the assets in the partnership! © The Jackson Group, LLC

31. The Power of Discounts n Watts v. Commissioner87.2919% 51 T.C.M. 60 (1985) n Estate of Daniel J. Harrison, Jr.46.6667% 52 T.C.M. CCH Dec. 43,609(M)(1987) n Estate of Catherine Campbell v.56.8176% Commissioner, 62 T.C.M. 1514 (1991) Commissioner, 62 T.C.M. 1514 (1991) n Novak v. United States, 39.2597% 87-2 USTC 13,728 (1987) n Estate of Bennett v. Commissioner,24.8323% © The Jackson Group, LLC

32. The “Charging Order” n Creditor does not become a partner n No right to partnership assets n No right to dissolve partnership n Charging order is sole remedy n Creditor must pay income tax, even if no income is distributed to limited partners. © The Jackson Group, LLC

33. ©Stan Miller 1998 Reduce Wealth Transfer Taxes Reduce income taxes by accumulating income in Alaska Trust Inhibit the foolish dissipation of wealth Protect against the claims of the beneficiary’s creditors Can go on into perpetuity Benefits of Alaska Trust:

34. ©Stan Miller 1998 From the WealthCounsel and Stan Miller Thank You

35. Your Estate Tax “Coupon” Unified Credit Equivalent Amount $1,500,000 Non-Transferrable ; Expires at Death © The Jackson Group, LLC