Tag Archives: Trust Fundamentals

Steve Oshins- Decanting and DAPTs

Decanting can be a great way to add flexibility to irrevocable trusts. Beyond correcting scrivener’s errors, resolving ambiguities, or clarifying trust language, decanting allows trustees to change some provisions of an irrevocable trust by pouring the assets into a new trust with modified terms.

Decanting can be used to make administrative changes like a change of trust situs, changes to the number and powers of trustees, or to consolidate trusts, to list a few. Decanting also can be used to make certain changes to how the trust assets are distributed, like enhanced spendthrift provisions, enhanced asset protection, or to qualify a special needs beneficiary for needs-based benefits, among other dispositive changes.

Drafting Superior Trusts- Group Panel Discussion

Peak Trust Company hold a workshop called “Drafting Superior Trusts”  on September 29, 2016.

Covered the following topics:

  • Special Trusts and Special Things about Trusts for Your Clients (Jonathan & Matthew Blattmachr)
  • Non-grantor Trusts w/ Settlor as Direct & Indirect Beneficiary (William Lipkind)
  • S. Estate Planning for NonCitizens and NonResident Aliens (Diana Zeydel & Karen Yardley)
  • Drafting Superior GRATs (Carlyn McCaffery)
  • Decanting and DAPTs (Steve Oshins)

IRS Rules Self-Settled Alaska Trust Will Not Be In Grantor’s Estate

A significant new letter ruling, Ltr. Rul. 200944002, enables planners to provide clients with a strategy that offers not only asset protection, but significant potential estate tax savings and other advantages.

Though many, if not most, self-settled trusts are intended to be incomplete gift transfers (and thus includable in the settlor’s estate), Ltr. Rul. 200944002 provides planners with the opportunity to provide clients who have been hesitant to make large gifts (for fear of future needs) with a strategy that offers not only asset protection, but significant potential estate tax savings while at the same time the comfort of knowing that if the settlor requires some portion of the funds transferred, a trustee can provide for them.

It has been 12 years since Alaska adopted the first self-settled spendthrift trust legislation. Based on the law as it existed at that time, it seemed that a self-settled Alaska trust, under which the trustee other than the grantor could but was not required to distribute trust property to the grantor, would not be included in the grantor’s estate for federal estate tax purposes unless the grantor held some other interest or power over the trust. Developments since that time, such as Rev. Rul. 2004-64, have reinforced that conclusion. And Ltr. Rul. 200944002 seems now to be directly on point.

Supercharged Credit Shelter Trust

Many married individuals adopt an estate plan designed to avoid estate tax on the death of the first spouse to die while taking maximum advantage of the so-called unified credit (also known as the applicable exclusion amount). The plan typically involves setting apart the amount sheltered by the uni­fied credit (the “credit shelter” amount) separately and providing that only the portion of the estate in excess of the credit shelter amount will pass in a manner that qualifies for the marital deduction.

Alaska’s Powerful Decanting Law: Amending Trusts Without Going to Court

Trusts are one of the most important tools available for tax, estate and financial planning. Alaska has the best laws for setting up trusts. However, sometimes, the terms of the trust do not permit the trust to protect maximum advantage for such planning, such as an opportunity to reduce income tax. Other times, circumstances change and the trustee and beneficiaries wish the terms of the trust could be changed. In some cases, the trustee and beneficiaries may petition a court to make changes or corrections. Sometimes, the courts will make the desired changes and sometimes they will not. In any case, court proceedings can be expensive and time consuming.

Alaska Adopts a New Trust Law

  • Alaska has corrected a major defect common in self-settled laws.
  • It now provides a definition for a “pre-existing creditor”.
  • Now, one can name a non-resident beneficiary as a co-trustee without compromising creditor protection.
  • No need to worry now that a judge might order a distribution, which a creditor could then attach.
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Avoiding the Adverse Effects of Huber

A recent U.S. Bankruptcy Court decision, 111 re Huber,’ held that an Alaska self-settled trust essentially was invalid with respect to claims of the settlor’s creditors in bankruptcy. The case doesn’t appear to break new ground and, in some ways, seems flawed. However, it’s important to review the decision to help determine how best to protect assets using a self-settled trust. In any case, the ruling doesn’t seem to thwart using a self-settled trust to keep assets from being included in the gross estate of the settlor for federal estate tax purposes.

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A New Direction in Estate Planning: North to Alaska

Alaska recently ban enacted legislation similar to laws in certain foreign asset protection jurisdiction. As a consequence, an American in any state can create a trust for his or her own benefit which is protected from creditors provided, among other things, is is not a transfer intended to defraud known creditors. Perhaps of greater importance, Alaska trusts open a new dimension in estate planning. One of this article’s co-authors, Jonathon Blattmachr, was the principle draftman of this new Alaska legislation

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