Transcript Estate Planning Council Presentation

Situs Shopping: Does it matter?
Presenter: Alice Rokahr
Date:February, 2011
Two Important Observations
 A Legacy Trust can be funded with a relatively small portion of the client’s
total wealth and remain as just that part for a legacy or part of an overall
strategy. Planning now lets the client take advantage of:
– The GST exemption amount to maximize transfer tax savings
– The gift tax annual exclusion amount if the client wants to make
additional future gifts to the trust
 A Legacy Trust does not have to continue in perpetuity
– Because assets in a Legacy Trust are not subject to transfer taxes,
there are significant transfer tax benefits even if the grantor wants the
trust to last only two or three generations
– Trust protectors or persons with special powers can terminate the trust
when desirable
2
Reasons to Use a Legacy Trust State - Overview
 Flexibility
– In adapting to changing circumstances
– In investing the trust’s assets
– In administering the trust
 Creditor Protection
 Confidentiality/Privacy
 Tax Reasons
 No Time Limitations
3
Advantages of Alaska, Delaware and South Dakota
Some of the advantages of setting up a trust in Alaska, Delaware or
South Dakota include:
1
2
Repeal of Rule Against Perpetuities (RAP) enabling Multi-Generational
Planning
Greater Customization Afforded by Trust Laws
3
Flexible Total Return Unitrust Statutes
4
Flexible Directed Trust Statutes
5
No State Income Tax
6
Trust-friendly Judiciary and Legislature
7
Heightened Confidentiality
4
Flexibility with Changes in Circumstances
 Legacy Trusts provide greater flexibility to deal with future changes in
circumstances through the use of:
– Trust protectors to address various concerns of Grantor(s) /
Investment advisors / Distribution advisors
– Special trustees and Appointment committees for various items of
special interest to the family situation (Education committee)
– Statutory provisions allow modification and amendments to the
trust so it can evolve with the changing circumstances and needs
of the family, while still carrying out the original purposes for which
the trust was created
5
Trust Protector Powers
A Trust Protector may be given the power to:
 Modify or amend:
– the trust to achieve favorable tax results or to take advantage of
changes in the law
– the terms of a power of appointment
– the trust to take advantage of favorable laws on distribution,
administration or restraints on alienation
 Increase/decrease the interest of a beneficiary
 Remove and appoint any of the other fiduciaries
 Terminate the trust
 Veto or direct distributions from the trust
 Change the situs or governing law
 Appoint successor trust protector(s)
 Advise the trustee on matters concerning the beneficiaries
 Interpret the terms of the trust
 Provide direction on notices to qualified beneficiaries
 A trust protector can be given broad discretion with respect to the
exercise of any of these powers, and decisions made in the exercise of
that discretion are non-reviewable and binding on all interested parties, to
the greatest extent permitted by law
6
Trust Protector Powers

Although there are many powers available, the attorney will want to
utilize only those powers that are necessary to carry out the terms of the
trust.
– The standard guiding a trust protector’s actions is what is in the best
interests of the trust
A trustee who acts at the direction of a Trust Protector has no liability
Additional issues that need to be addressed prior to drafting are
1. The scope of authority of each party (trustee, adviser, trust protector, etc.)
needs to be clearly defined
2. A given power should not be shared unless there is an appropriate tiebreaking mechanism
3. Provisions explaining due diligence and responsibilities to beneficiaries who
lack decision-making authority should be clearly outlined
7
Flexibile Asset Management
 THE TYPES OF ASSETS UNDER MANAGEMENT:
– Concentrated holdings in real estate or in a closely-held business
– Obtains secondary benefit from reviews by Business or Real Estate
Advisory Groups within Wells Fargo
– Assets with little liquidity
– Intangibles and other specialty assets
MANAGEMENT OF THE ASSETS
– Ability for the trustor to draft provisions overriding the restrictions of the
Prudent Investor Act or the Uniform Principal and Income Act
– Ability to work with outside Investment Manager or Family office
8
Flexibility Examples
Legacy Trust alignment with Closely Held Business interests
Family Entities
Legacy
Trust
Wells Fargo, as trustee
Trust Protector
May modify and
amend trust, terminate
trust, provide direction,
veto or direct
distributions, etc.
Co-Trustee
May participate in
decision making
together with other
trustees, so decision
making is balanced
across a group
Trust may hold interests in
family entities such as LLCs,
partnerships and
corporations. The family may
retain control by retaining
voting or managing interests
outside the trust, or
appointing a trust protector or
special committee to vote
those interests
Special
Trustee
May be assigned
duties or
responsibilities with
respect to specific
assets or issues
9
Flexibility Example
Directed Trust alignment with Closely Held Business interests
Trust Protector
Co-Trustee
Special
Trustee
TRUSTEE
Distribution
Committee
Acts as outlined in the trust
and directs the trustee on
timing and amounts of
discretionary distributions
to beneficiaries
Investment
Committee
May direct investments,
vote proxies and select
investment advisors,
managers and delegate
powers to them
Other Special or
Advisory
Committees
Complete other duties and
responsibilities as
delegated by the Grantor
10
Flexibility in Administration
 GREATER FLEXIBILITY IN THE ADMINISTRATION OF THE TRUST:
– Decanting power (Create new trust to take advantage of
statutory changes)
– Conversion to/from a unitrust
– Equitable power to adjust when necessary to balance needs of
income and remainder beneficiaries
– Ability to follow grantor’s direction regarding the type and
amount of information given to a beneficiary
– Grantor has unlimited discretion in establishing the trust
investment policy
– Greater direction in the amount of information provided to
beneficiaries vs. Uninform Trust Code requirements
11
The beneficiaries of the Trust have enhanced creditor
protection.
 A spendthrift provision is a material provision of the trust
 A beneficiary with a discretionary interest has no property right that creditors can “reach”
 Courts cannot force a trustee to exercise its discretion to pay a creditor
 Courts cannot force beneficiary to exercise a power of appointment
 The trustee can still pay an expense directly on behalf of a beneficiary of a trust which directs
support or mandatory distributions
 Actions against the trustee must be brought in the jurisdiction of trust situs
 A court review of trustee decisions for a discretionary trust limited to dishonesty, improper
motive, or for failure to act when the trustee had a duty to do so
 If the trustee’s distribution power is not limited by an ascertainable standard, the beneficiary’s
interest is neither a property interest nor does it give anyone an enforceable right
12
Flexibility in Administration
 Greater flexibility in the administration of the trust:
– Decanting power (Create new trust to take advantage of statutory
changes)
– Conversion to/from a unitrust
– Equitable power to adjust when necessary to balance needs of income
and remainder beneficiaries
– Ability to deviate from the rules of the Uniform Principal & Income Act
– Ability to follow grantor’s direction regarding the type and amount of
information given to a beneficiary
– Grantor has unlimited discretion in establishing the trust investment
policy
13
Top Reasons
 Confidentiality and Privacy
– The grantor may restrict beneficiaries’ rights to be informed of their
interests
– No court supervision
– Documents are typically sealed when courts have to become involved
 No state income tax
– Dynasty trust states do not tax trust income that is accumulated for
future distribution, thus maximizing the assets ability to grow
 No limitation on the term of the trust (Rule Against Perpetuities
eliminated)
– This provides maximum flexibility because the trust can remain in
existence for as long as you want it to
14
Optional Planning Models
Your Legacy Trust can be designed to address the goals and values
most important to you! Different models can be utilized to merge the
management of your wealth with your values and goals. You are in
charge and can implement as few or as many goals as you desire.
 Leg-up Model
 Retirement Model
 Restricted Payment Model
 Family Values Model
 Philanthropic Model
 Family Bank Model
Imagination is the only limitation to the creativity you can
implement in a multi-generational trust.
15
Comprehensive Trust Services
The Wells Fargo Legacy Trust Group can help you with every stage of
the trust’s lifecycle.
Assessment
and Review
We analyze your current situation, evaluate financial and
non-financial resources, review your current estate plan in
conjunction with your other professional advisors, and quantify
long-term legacy goals
Preparation
and Transfer
At your discretion, we work closely with your other professional
advisors as they prepare your estate plan; then we assist with
implementation, including the transfer of assets to the trust in
the state of your choice
Establishing
Your Trust
We establish the tax status of your trust, determine your
investment objectives and begin the administration of your
trust; we have professionals to manage non-financial assets
as part of your legacy trust
Ongoing Services
We provide detailed record keeping, comprehensive
administration and reporting, collection of interest and
dividends, calculation of gains, losses, income and deductions,
tax preparation and audit support, and periodic account review
16
Contact Information
For more information, help with a COI or client meeting call
 Paul R. Griffith, SBS Manager, (605) 575-4938
 Alice L. Rokahr, Sr. Trust Administrator, (605) 575-7412
 Jennifer L. Sheets, Sr. Trust Administrator, (605) 575-6412
 John Amalfitano, Trust Adminstrator, (302) 765-5660
Or visit the intranet site
on WealthNet:
http://wmg.wellsfargo.com
/wmg_intranet/Products_S
ervices/TrustEstate/Legacy
Trust/index.htm
17
18