November 21, 2012 (Thanksgiving Edition) Year-End Gift Planning Quiz and Domestic Asset Protection Trusts Revisited
TEST YOUR KNOWLEDGE ON YEAR-END GIFT PLANNING
DOMESTIC ASSET PROTECTION TRUSTS REVISITED: WHY NEVADA?
On the occasion of Thanksgiving we wish to express our gratitude to the great many people who have contributed to our practices and lives, most notably our non-
We are mindful of and thankful for the ripple effect that our work has on future generations, people who work for our clients, people who receive goods and services from businesses, and for the advancement of our profession to help aid clients and society.
Lastly, thanks to all readers of the Thursday Report.
We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer please email Janine Ruggiero at Janine@gassmanpa.com
This report and other Thursday Reports can be found on our website at
www.gassmanlaw.com
TEST YOUR KNOWLEDGE ON YEAR-
As professional advisors we deal with a myriad of rules and practicalities when helping clients with annual gift planning.
While everyone is generally aware of the $13,000 per year per person gift exemption and the $5,120,000 lifetime exemption, which is set to expire on December 31, we see many errors or near errors that occur in year-
You can test your knowledge on the topics that we have covered in the Thursday Report below. Answers and a scoring chart follow.
QUESTION #1
Fill in the blank: The lifetime gifting exemption is scheduled to go from $5,120,000 in 2012 to _________ in 2013.
ANSWER
See our Thursday Report dated October 18, 2012, by clicking here.
QUESTION #2
When transferring assets to a limited partnership or LLC and then transferring the limited partnership or LLC interests by gift, how long should you wait to receive a discount for lack of marketability and lack of control?
ANSWER
See our Thursday Report dated September 20, 2012, by clicking here.
QUESTION #3
True or False: Your clients who are beneficiaries of a Qualified Terminable Interest Property (QTIP) trust cannot use a portion of the QTIP trust to take advantage of what remains of their $5,120,000 gift.
ANSWER
See our Thursday Report dated September 27, 2012, by clicking here.
QUESTION #4
True or False: Your clients cannot take advantage of what remains of their $5,120,000 gift exemption by establishing a Qualified Personal Residence Trust.
ANSWER
See our Thursday Report dated August 6, 2012, by clicking here.
QUESTION #5
Fill in the blank: The estate tax exclusion is scheduled to be $_______ next year.
ANSWER
See our Thursday Report dated November 7, 2012, by clicking here.
QUESTION #6
If one spouse is much wealthier than the other and would like to fund a $10,240,000 trust for the other spouse and descendants, can the beneficiary spouse split the gift to facilitate use of his or her $5,120,000 gift allowance?
ANSWER
See our Thursday Report dated September 20, 2012, by clicking here.
QUESTION #7
Is the election to split gifts as under Question #6 reversible?
ANSWER
See our Thursday Report dated September 20, 2012, by clicking here.
QUESTION #8
Can a client who wishes to gift for a grandchild purchase a $13,000 529 plan in the client’s own name as owner and designate the grandchild as the intended beneficiary and have the 529 plan pass outside of the client’s estate and the purchase be considered as a gift?
ANSWER
See our Thursday Report dated September 13, 2012, by clicking here.
QUESTION #9
Which doctrine should you always be concerned with when transferring an asset from A to B, then B to C because the doctrine may collapse “formally distinct steps in an integrated transaction” in order to assess federal tax liability on the basis of a “realistic view of the entire transaction.”
ANSWER
See our Thursday Report dated September 20, 2012, by clicking here.
QUESTION #10
Fill in the blank: The gift tax allowance is expected to be ______ next year.
ANSWER
See our Thursday Report dated October 18, 2012, by clicking here.
QUESTION #11
How could you advise a client who would like to take advantage of the $5,120,000 gift allowance before it goes away, but are afraid that they may run out of assets.
ANSWER
See our Thursday Report dated September 6, 2012, by clicking here.
Domestic Asset Protection Trusts Revisited: Why Nevada?
We had a number of responses to our memorandum last week on possible effects of the election and year-
We have historically not been big fans of domestic asset protection trusts, which are trusts that are formed in Nevada, Delaware, Alaska, and other jurisdictions with statutes that indicate that creditors cannot reach into them.
However, the estate tax planning advantage of trusts established in these states cannot be ignored for clients who would be inclined to make gifts to help assure that assets will not be subject to estate tax while also knowing that these assets might be used for the grantor as needed, as was explicitly permitted by the IRS in Private Letter Ruling 200944002.
While the vast majority of clients are able to have good asset protection structures without needing asset protection trusts, where an unmarried client has LLC or limited partnership interests that would qualify for charging order protection, which prevents both the creditorand the client to make withdrawals from the entity once a judgment is in place, why not go the next step and have the client contribute a large portion of his or her limited partnership or LLC interest to a trust that is engineered to provide both creditor protection and estate tax avoidance?
Prices are down on what it costs to establish and maintain a domestic asset protection trust. One licensed Nevada trust company charges only $1,500 a year to hold a Nevada account and limited partnership and/or LLC interests, and there are no tax return or Treasury disclosure requirements for “defective” domestic creditor protection trusts.
If and when the client makes more contributions to the LLC or limited partnership the percentages of ownership of the entity should be increased so that such proper credit is given for those contributions.
A prior large concern was that a Florida court might issue an order finding such a trust to be “all wet” and a judge in the state where the trust is formed might have to follow the Florida court judgment based upon the “Full Faith and Credit Clause” of the U.S. Constitution.
This is still a concern, but Alaska has had creditor protection trusts since 1997, and they have been demonstrated to have a stifling effect on creditors. This seems to mean that most if not all creditors are either settling or do not feel that they have a strong case. If such a trust is set aside and the primary asset it holds is a limited partnership or LLC interest that was owned by the grantor for a good period of time before making the contribution, then we think that the most likely “worse result” would be a judge allowing a charging order to be placed against the LLC or limited partnership interests. But that result would probably only come about after the creditor has had to spend significant monies in multistate litigation to even get that far.
Perhaps the bottom line here is that many clients who have been interested in creditor protection trusts now have a solid business reason to set them up – avoidance of federal estate tax – so now would be the best time for many of these clients to have a good business reason to set something up that could also protect their assets.
Thursday Report Test: Answers and Scoring Chart
Answers:
1. $1,000,000.
2. While a minimum holding period has not been established, holding a volatile stock for six days was sufficient in the Holman case. We recommend waiting much longer.
3. False. QTIPs can be divided into separate trusts, and one of the trusts can be gifted provided the division does not negatively impact a beneficial interest or the purposes of the trust as outlined by the trust instrument.
4. False. A QPRT is an excellent opportunity to substantially reduce potential estate tax liability and utilize their remaining gift tax exemption.
5. $3,500,000, as proposed in President Obama’s February 2012 budget proposal.
6. Yes!
7. Yes if: (1) the consent was originally made on a return filed before April 15th of the year after the gifts were made; and (2) the consent is rescinded before April 15th of the year after the gifts were made.
8. Yes!
9. The “Step Transaction” doctrine.
10. $14,000.
11. A viable solution for a client who insists upon this mechanism is to establish a trust in a creditor protection jurisdiction and to have the client either be a discretionary beneficiary, or an individual who could be added to the trust as a discretionary beneficiary by one or more independent Trust Protectors.
Scoring Chart:
If you scored 9-
If you scored 6-
If you scored 3-
If you scored 0-
APPLICABLE FEDERAL RATES
To view a chart of this month, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3 please click here.
NEWS AND UPCOMING EVENTS
MONDAY, December 3, 2012,12:30 – 1:00 p.m.
Join us for Lunch Talk. A FREE webinar series sponsored by the Clearwater Bar Association and moderated by Alan S. Gassman, Esq. This month’s topic is Incredible Cool Things You Can Do To Your Website with marketing expert John Graden. To register for this webinar please visit the Clearwater Bar Association atwww.clearwaterbar.org
TUESDAY, December 4, 2012 12:30 – 1:30 pm
Pension actuary Jim Feutz will join Alan Gassman for a free CLE and CPE webinar on Update of Pension, Labor and Tax Laws, Including 2012 Law Changes and Anticipate Changes for 2013. This webinar qualifies for 1 hour of continuing education credit. To register for the webinar please click here.
TUESDAY, December 4, 2012, 5:30 – 6:00 pm
Alan S. Gassman will be joined by health care attorney Lester Perling to speak onWhat Physicians Need to Know About “Excluded Persons” and How to Make Sure You Do Not Have One. To register for the webinar please click here.
WEDNESDAY, December 5, 12:30 –
The Whistleblower Threat: Do You Have It and What Can You Do About It? Lester Perling, J.D., M.H.A. and Alan S. Gassman, J.D., LL.M. will be presenting a webinar on the whistleblower threat. To register for the webinar please click here.
TUESDAY, January 8, 2013 5:00 – 5:30 pm
How to Land That First Job After College or Graduate School – What the Placement Office Hasn’t Told You. Recent college and graduate school graduates are having a difficult time finding their first professional job and are unaware of many proven techniques to help them find their first position. Job consultant Darry Griffis has an excellent track record in this area and will be sharing ten important techniques that your children or the children of your clients need to know to help find their first professional position. To register for this FREE webinar please click here.
FRIDAY, JANUARY 18, 2013
Florida Bar Seminar Save the date for a three day weekend in Ft. Lauderdale! The Florida Bar Continuing Legal Education Committee, the Health Law Section and the Tax Law Section present Representing the Physician 2013: Practical Considerations for Effectively Guiding Physicians and Their Practices. The seminar will be held at the Sheraton in Ft. Lauderdale, Florida. Speakers include Lester J. Perling, Esq., on the topic of Federal and Florida Health Law: Hypothetical Situations that Are Often Overlooked by Physicians and Alan S. Gassman on the topic of It is Not Just Health and Tax Laws: Charting Florida Waters When Designing Physician and Medical Group Arrangements. Laws you Knew or Wish you Knew.
Christopher Denicolo, J.D., LL.M. is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. He has co-
Kenneth J. Crotty, J.D., LL.M., is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. Mr. Crotty has co-
Thank you to our law clerks that assisted us in preparing this report:
Kacie Hohnadell is a third-
Alexandra Fugate earned her B.A. in English from the University of Florida in 2008, and J.D. from Stetson University College of Law in 2012. She has been a Guardian ad Litem for the past two years, a judicial intern for the Twelfth Circuit in Bradenton, and was recently admitted to the Florida Bar. She wants to pursue a career in business, employment, and labor law. Her email is Alexandra@gassmanpa.com
Eric Moody is a third-