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There are also a host of modifications or precautions you can consider: defer your right to receive any distributions for 10 years (the bankruptcy laws permit a trustee in bankruptcy to set aside transfers to self-settled trusts with 10 years); instead of having yourself listed as a beneficiary let a trusted person acting in a non-fiduciary capacity (i.e., not a trustee or trust protector) have the power to appoint descendants of your grandparents.
Thus, you are not a beneficiary when the trust is created, so arguably the trust is not a self-settled trust.
Domestic asset protection trusts (“DAPTs”) are trusts that you set up (you’re the settlor) but you are a beneficiary of, called “self-settled” trusts.
Although there have been a number of court cases suggesting that self-settled trusts might not work, the facts on all of those cases have been pretty ugly.
What techniques do you have the comfort to agree to?
Have you reviewed with your professional advisers all the myriad of issues that might arise using these techniques?
Few plans will have much chance of success without periodic professional involvement.
This might well help whittle your estate down over the years to below the inflation adjusted federal exemption. Maximizing basis and minimizing estate tax can all be accomplished but you have to weigh the cost, complexity and economic risks of any technique you consider.
■ DAPTs: With the general demise of the estate tax for most wealthy clients asset protection planning has assumed a more important role in planning.
But now, most wealthy people’s estates are below the ,430,000 (2015) estate tax exemption amount. Absent the IRS regulatory change the IRS could argue that the FLP/LLC interest must be discounted so that the assets in your estate will not receive the same quantum of basis step up.
With a regulation prohibiting discounts your estate might get a bigger basis step up (less capital gains to heirs) at no estate tax cost. ■ Administration: You have to meet regularly with all of your advisers after completing a complex/large transaction in order to properly administer that plan. A few of the myriad of vital steps folks so often get wrong include: missing note payments, missing GRAT or CRT annuity payments, paying fees from the wrong entities/trusts, monitoring defined value mechanisms, not issuing Crummey notices, not monitoring trust termination dates, and more.
For example, one technique is to give someone a general power of appointment over a trust.