Trust Situs for Dynasty Trusts and DAPTs: Key Differences Among Top-Tier States Selecting the Best Situs Among Nevada, Delaware, Alaska, South Dakota, Ohio, Tennessee and Wyoming--and Why

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THURSDAY, AUGUST 8, 2013

Presenting a live 90-minute webinar with interactive Q&A

Steven J. Oshins, Oshins & Associates, Las Vegas, Nev.

Eido M. Walny, Walny Legal Group, Fox Point, Wis.

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Trust Situs for Dynasty

Trusts and DAPTs: Key Differences among

Top-Tier States

Steven J. Oshins, Esq., AEP (Distinguished) Eido M. Walny, Esq., AEP, EPLS

Law Offices of Oshins & Associates, LLC Walny Legal Group LLC

1645 Village Center Cir., Ste. 170 7670 N. Port Washington Road

Las Vegas, NV 89134 Fox Point, WI 53217

Phone: 702-341-6000 Phone: 414-751-7531

Fax: 702-341-6001 Fax: 414-247-9959

Website: www.oshins.com Website: www.walnylegal.com

Email: soshins@oshins.com Email: ewalny@walnylegal.com

Copyright © 2013 by Steven J. Oshins and Eido M. Walny. All rights reserved.

6

Dynasty Trust

The Dynasty Trust should be

the centerpiece of nearly

EVERY estate plan!

7

Staggered Distribution Trust

Nearly every trust you see from most every

law firms is drafted as a staggered

distribution trust

A “staggered distribution trust” is a trust that

makes mandatory distributions to the

beneficiary at staggered ages (I.E. 25/30/35)

This subjects the trust assets to potential

estate taxes, creditors and divorcing spouses

8

Beneficiary Controlled Trust

Rather than make mandatory staggered

distributions, why not just pick an age to give

the beneficiary control?

Very few attorneys understand this which is

why nearly every trust has the same drafting

error

Once the client understands that the trust can

be drafted as a beneficiary controlled trust,

there is no reason to ever terminate the trust

9

Dynasty Trust

A “Dynasty Trust” is an irrevocable trust that

is not subject to estate taxes for as long as

state law allows

It can also be drafted to be protected from

creditors and divorcing spouses

Rule against perpetuities limitations

10

Staggered Distribution Trust

Pot Trust

for Descendants

Child #1

Child #2

Child #3

Distributes at 25, 30 and 35 Distributions at 25, 30 and 35 Distributions at 25, 30 and 35

11

Dynasty Trust

Pot Trust

for Descendants

Child #1

Child #2

Child #3

Grandchild #1

Grandchild #2

Grandchild #3

Grandchild #4

Grandchild #5

Grandchild #6

12

$1 Million Example: Dynasty Trust vs. 40%

Estate Tax every 30 Years

After-Tax Growth

Value of Dynasty Trust

After 120 Years

Value of Property

if No Trust

3.00% $34,710,987 $4,498,544

4.00% $110,662,561 $14,341,868

5.00% $348,911,561 $45,218,993

6.00% $1,088,187,748 $141,029,132

7.00% $3,357,788,383 $435,169,374

8.00% $10,252,992,943 $1,328,787,885

9.00% $30,987,015,749 $4,015,917,241

10.00% $92,709,068,818 $12,015,095,319

13

$1 Million Example: Two-Generation

Trust vs. 50% Estate Tax in 30 Years

Simple example – Just two generations

Assume 7.2% after-tax growth – Rule of 72 – Doubles every 10 years

Results… – With trust = $8M to grandchild

– Outright = $4M to grandchild / $4M to IRS

14

Key Dynasty Trust States

Characteristics

Term

Taxes

3rd Party Spendthrift Protections

DAPT Status

15

Key Dynasty Trust States (in alphabetical order)

Alaska

Delaware

Nevada

New Hampshire

Ohio

South Dakota

Tennessee

Wyoming

16

Key Dynasty Trust States –

Perpetuities

The leading Dynasty Trust states either allow

perpetual trusts or allow trusts to last

significantly longer than the traditional rule

against perpetuities will allows

17

Key Dynasty Trust States –

Perpetuities

Alaska- Perpetual (1,000 if exercise POA)

Delaware- Perpetual for personal property /

110 years for real estate

Nevada- 365 years

New Hampshire- Perpetual

Ohio- Perpetual

South Dakota- Perpetual

Tennessee- 360 years

Wyoming- 1,000 years

18

Key Dynasty Trust States –

State Income Tax

The leading Dynasty Trust states don’t have a

fiduciary income tax (or don’t apply it to trusts

set up by an out-of-state settlor)

19

Key Dynasty Trust States –

State Income Tax

Alaska- None

Delaware- None (except residents)

Nevada- None

New Hampshire- None (except dividends,

interest on residents)

Ohio- None (except residents)

South Dakota- None

Tennessee- None (except dividends, interest

on residents)

Wyoming- None

20

Key Dynasty Trust States –

Third-Party Spendthrift Trust Protection –

Divorcing Spouse/Child Support

The leading Dynasty Trust states have

spendthrift trust laws protecting third-party

trusts from…

– Divorcing spouses

– Child support

Many states make exceptions by statute or by

case law

Discretionary trusts vs. Support trusts

21

Key Dynasty Trust States –

Third-Party Spendthrift Trust Protection –

Divorcing Spouse/Child Support

Alaska- Protected

Delaware- Not protected from either (by case law)

Nevada- Protected

New Hampshire- Not protected from either (by

statute)

Ohio- Not protected from child support (by statute)

South Dakota- Protected

Tennessee- Protected

Wyoming- Not protected from child support (by

statute)

22

Key Dynasty Trust States – DAPT State Ranking

The leading Dynasty Trust states also have

favorable Domestic Asset Protection Trust

legislation

– Many trusts include the settlor as a discretionary

beneficiary (or give a Trust Protector the power to

add the settlor in as a discretionary beneficiary)

23

Key Dynasty Trust States – DAPT State Ranking (as of July 2013)

Alaska- #5

Delaware- #6

Nevada- #1

New Hampshire- #9

Ohio- #3 (tie)

South Dakota- #2

Tennessee- #3 (tie)

Wyoming- #7

24

Overall Dynasty Trust State Rankings (as of Oct. 2012 – next update Oct. 2013)

South Dakota- #1

Alaska- #2

Nevada- #3

Tennessee- #4

Delaware- #5 (tie)

Wyoming- #5 (tie)

New Hampshire- #7

Ohio- #8

25

Domestic Asset Protection Trust

A DAPT is a U.S. asset

protection trust in which the

trust grantor is a permissible

beneficiary

26

Does a DAPT Work?

A DAPT definitely works for a resident of the

DAPT state

Does it work for a resident of a non-DAPT

state who sets it up under the laws of a

DAPT state?

Very large majority believe it works

Since first DAPT statute in 1997, only two cases

Dahl v. Dahl, Fourth Judicial District Court, Utah County,

State of Utah, Civil No. 090402989, November 1, 2011

In re Huber, 2013 Bankr. LEXIS 2038, May 17, 2013

27

In re Huber

In re Huber, 2013 Bankr. LEXIS 2038, May 17, 2013

Donald Huber was a real estate investor

The real estate market was crashing and Huber had numerous

personal guarantees

He set up an Alaska DAPT and transferred in $10,000, a 99% LLC

interest (holding more than 25 different LLC interests), and

other assets, thereby leaving himself insolvent

Trust assets were not protected

Blatant fraudulent conveyance

Filed for bankruptcy: 10-year clawback per Sec. 548(e)

Choice of law issue: Washington resident (bad WA

statute/Mastro case was WA resident)

28

Dahl v. Dahl

Dahl v. Dahl, Fourth Judicial District Court, Utah

County, State of Utah, Civil No. 090402989,

November 1, 2011

Charles and Kim Dahl were Utah residents

Charles set up a Nevada DAPT and transferred his residence (with Kim

jointly transferring the residence) and a 97% LLC membership interest

(holding brokerage assets) to the DAPT

Charles and Kim divorced

Trust assets were protected

Charles won on Summary Judgment

“As noted by the Court in Innerlight v. Matrix Group, LLC, 2009 UT 31,

choice of law and choice of forum provisions contained in contracts

and legal documents are enforceable.” [Emphasis added.]

29

Does a DAPT Work?

If almost all potential

creditors have been

frustrated to the point

where they choose to

either settle the dispute

or go away altogether,

doesn’t this mean that

almost EVERY DAPT has

worked?

30

Key DAPT States (in alphabetical order)

Alaska

Delaware

Nevada

New Hampshire

Ohio

South Dakota

Tennessee

Wyoming

31

Key DAPT States –

State Income Tax

The leading DAPT states don’t have a

fiduciary income tax (or don’t apply it to trusts

set up by an out-of-state settlor)

32

Key DAPT States –

State Income Tax

Alaska- None

Delaware- None (except residents)

Nevada- None

New Hampshire- None (except dividends,

interest on residents)

Ohio- None (except residents)

South Dakota- None

Tennessee- None (except dividends, interest

on residents)

Wyoming- None

33

Key DAPT States –

Statute of Limitations

The leading DAPT states have a short statute

of limitations period

– Preexisting creditors vs. Non-preexisting creditors

– Fraudulent conveyance issues

34

Key DAPT States –

Statute of Limitations

Alaska- 4 years / 1-year discovery

Delaware- 4 years / 1-year discovery

Nevada- 2 years / 6-month discovery

New Hampshire- 4 years / 1-year discovery

Ohio- 1.5 years / 6-month discovery

South Dakota- 2 years / 6-month discovery

Tennessee- 2 years / 6-month discovery

Wyoming- 4 years / 1-year discovery

35

Key DAPT States –

Exception Creditors

The leading DAPT states have minimal

exception creditors

What are exception creditors?

Examples

– Divorcing spouse

– Alimony

– Child Support

– Preexisting tort creditors

36

Key DAPT States –

Exception Creditors

Alaska- Divorce

Delaware- Divorce, Alimony, Child Support, Preexisting Tort

Creditors

Nevada- None

New Hampshire- Divorce, Alimony, Child Support, Preexisting

Tort Creditors

Ohio- Divorce, Alimony, Child Support

South Dakota- Divorce, Alimony, Child Support, Preexisting Tort

Creditors --- only if debt at time of transfer

Tennessee- Divorce, Alimony, Child Support

Wyoming- Child Support, Property listed on application to obtain

credit – but only as to that lender

37

Key DAPT States –

Ease of Use

The leading DAPT states do not make it

difficult to take advantage of the DAPT

opportunity

It is prudent to have the settlor execute an

Affidavit of Solvency when making a transfer

to the DAPT

– Some of the DAPT states require a new Affidavit

of Solvency for every new transfer to the DAPT

38

Key Dynasty Trust States –

Ease of Use

Alaska- Affidavit required

Delaware- No affidavit required

Nevada- No affidavit required

New Hampshire- No affidavit required

Ohio- Affidavit required

South Dakota- No affidavit required

Tennessee- Affidavit required

Wyoming- Affidavit required

39

Key DAPT States –

Clear and Convincing Evidence

The leading DAPT states require the creditor

to prove a fraudulent transfer to the DAPT by

“clear and convincing evidence”

This is a high hurdle

40

Key Dynasty Trust States –

Clear and Convincing Evidence

Alaska- Clear and convincing

Delaware- Clear and convincing

Nevada- Clear and convincing

New Hampshire- Limited Clear and

convincing

Ohio- Clear and convincing

South Dakota- Clear and convincing

Tennessee- Clear and convincing

Wyoming- Clear and convincing

41

Overall DAPT State Rankings (as of July 2013)

Nevada- #1

South Dakota- #2

Ohio- #3 (tie)

Tennessee- #3 (tie)

Alaska- #5

Delaware- #6

Wyoming- #7

Rhode Island- #8 [This state not discussed today]

New Hampshire- #9

42

Links to State Annual State Rankings Charts

Annual Dynasty Trust State Rankings Chart

can always be accessed at

http://www.oshins.com/images/Dynasty_Trust

_Rankings.pdf

Annual Domestic Asset Protection Trust State

Rankings Chart can always be accessed at

http://www.oshins.com/images/DAPT_Rankin

gs.pdf

Steven J. Oshins, Esq., AEP (Distinguished) Eido M. Walny, Esq., AEP, EPLS

Law Offices of Oshins & Associates, LLC Walny Legal Group LLC

1645 Village Center Cir., Ste. 170 7670 N. Port Washington Road

Las Vegas, NV 89134 Fox Point, WI 53217

Phone: 702-341-6000 Phone: 414-751-7531

Fax: 702-341-6001 Fax: 414-247-9959

Website: www.oshins.com Website: www.walnylegal.com

Email: soshins@oshins.com Email: ewalny@walnylegal.com

Thank You For Attending Today’s Seminar