Asset Protection for the Middle Class
Are your clients:
Potentially subject to the Federal estate tax?
Facing potential long-term care expenses?
Worried about protecting their remaining assets during and after the current financial crisis?
Get guidance and advice from veteran asset-protection trust advisers and drafters!
The authors of Planning and Defending Asset-Protection Trusts explain how to avoid these basic traps:
Make sure the transferors retain post-transfer solvency, disclose transfers whenever possible, and avoid making transfers immediately before increasing their risk exposure. An attorney who allegedly assists an insolvent client in shielding assets from creditors may find himself or herself a defendant in collateral litigation with creditors. Banco Popular North America v. Gandi, 876 A.2d 253 (N.J. 2005) (refusing to dismiss negligence claim alleging that attorney misrepresented the debtor’s finances).
Plan ahead: Remember that for Medicaid asset protection purposes any assets added to the trust will be subject to a five-year look-back period. Allow trustees and others to add additional assets to the trust, so that initial assets may be granted protection. Attorney who fails to explain the limits of Medicaid asset protection to clients may get into trouble if a client’s trust assets are considered “available assets” for Medicaid qualification purposes.
Choose trustees and successor trustees who will exercise their discretion (without considering their personal interests) in order to preserve assets, but be sure to avoid any collusion or advance agreements or “side agreements” between settlors and beneficiaries. Attorney may be subject to liability to creditors for helping debtors conceal assets.
Permit the Trustee to exercise a limited—not unlimited—power of appointment to provide maximum flexibility in naming contingent beneficiaries. Ahern v. Thomas, 248 Conn. 708, 739, 733 A.2d 756, 775 (1999) (trustees did not have a general power to distribute trust principal; the trust was not an available resource).
Allow the trustee flexibility in determining investment strategies, including the ability to invest for capital appreciation or income. Depending on the needs of the beneficiaries, the settlor may wish to choose investments that yield little or no income (if he or she is likely to apply for Medicaid in the future) or substantial income if the trust is designed to cover the beneficiary’s living expenses.
Determine if the client needs an income-only trust. If so, prohibit the trustee from (1) treating capital gains as income, (2) adjusting between income and principal, or (3) converting principal and income to a unitrust amount. If not, permit the trustee to invest for total return without regard to distinctions between income and principal. The trust may need to prohibit reliance on any state law statute or doctrine that would otherwise give the trustee the power to convert any part of a trust into a total return unitrust.
Allow distributions to children or others who might then choose to pay privately for an elder's care. For example, the trust might give the settlor a special limited power of appointment over the trust corpus in favor of the settlor’s children or other relatives—who may be inclined to provide the settlor with personal, financial, or emotional care and assistance.
The style of the book is clear and direct, with an eye toward practicality in execution. Highlighted boxes with “practice tips” are a nice touch.
--Nancy Shurtz, Estate Planning magazine
Attorneys who deal with trusts and estates often spend a great deal of time explaining to clients the risks and benefits of various techniques. When preparing any type of trust, the client’s financial condition, age, family situation, health, goals, tolerance for risk, and personality must be considered. These considerations are particularly relevant when designing an asset-protection trust.
The text includes two forms:
A Delaware Asset-Protection Trust
An Irrevocable, Safety-Net, Income-Only, Poverty-Prevention, Limited-Discretionary-Support Trust for a Middle-Class Senior Citizen
ALI-ABA is proud to present the work of an all-star cast of contributors. These contributors have provided strategies and tactics for protecting assets, discouraging improper creditor claims, and preventing dissipation of trust assets.
Evan H. Farr is the principal attorney of the Farr Law Firm in Fairfax, Virginia. He obtained his B.A. from the University of Pennsylvania in 1984 and his J.D. from the College of William & Mary in 1987, and is both a Certified Elder Law Attorney and a Certified Estate Advisor. A member of the Virginia and DC Bars, Evan's practice is limited to Estate Planning, Asset Protection, Medicaid Planning, and Special Needs Planning. Evan serves on the Board of Directors of the Virginia Academy of Elder Law Attorneys and the Virginia Bar Association Elder Law Section.
Evan has been named by Virginia Super Lawyers Magazine as one of the top 5% of attorneys in Virginia since 2007, and by Washington, DC Super Lawyers Magazine as one of the top 5% of attorneys in DC since 2008. He is a nationally-renowned expert and CLE speaker in the fields of Elder Law, Special Needs Planning, and Asset Protection, including Medicaid Asset Protection and Asset Protection Trusts, and is a widely-acclaimed author in these fields. His publications include a book (The Virginia Nursing Home Survival Guide), numerous articles that have appeared in the popular press, and numerous scholarly articles for the legal profession.
Richard Nenno is a Managing Director and Trust Counsel at Wilmington Trust Company. He is admitted to the bars of Delaware and Pennsylvania, is a cum laude graduate of Princeton University, and received his J.D. degree from Harvard Law School.
Dick is recognized as a national speaker and published authority on estate planning issues. He has spoken at the University of Miami Institute on Estate Planning, the ALI-ABA Planning Techniques for Large Estates Conference, the Notre Dame Tax and Estate Planning Institute, and many other conferences. He is a member of the Delaware State Bar Association (Past Chair: Estates and Trusts Section) and the American Bar Association, Section of Real Property, Trust & Estate Law (Chair: Non-Tax Estate Planning Considerations Group) and Section of Taxation.
He is the author or co-author of numerous articles, including Delaware Trusts 2009, Asset Protection: Domestic & Int’l Law & Tactics Chap. 14A (2009); Terrors of the Deep: Tax Dangers When Exercising Powers Over Trusts—The GST Regulations and the Delaware Tax Trap, 34 Tax Mgmt. Est., Gifts & Tr. J. 76 (Jan. 8, 2009); Planning to Minimize or Avoid State Income Tax on Trusts, 34 ACTEC J. 131 (Winter 2008).
Gideon Rothschild focuses his practice in the areas of domestic and international estate planning and asset protection, including the use of sophisticated estate planning techniques in the representation of high-net-worth individuals. Mr. Rothschild is a nationally-recognized authority on the use of offshore trusts and estate planning strategies for wealth preservation and succession planning. His clients include professionals, real estate developers and owners, closely-held business owners and directors of publicly-held companies. His practice also includes estate administration and the representation of clients in taxpayer disputes at the federal, state and local levels.
Mr. Rothschild is a Fellow of the American College of Trust and Estate Counsel and Academician of The International Academy of Trust and Estate Lawyers.
He is an Adjunct Professor at the University of Miami Law School Graduate Program and New York Law School and has lectured frequently to professional groups including the University of Miami’s Philip Heckerling Institute, the New York University Federal Tax Institute, the New York State Bar Association, the American Bar Association, and the American Institute of Certified Public Accountants.Mr. Rothschild is a 2007 recipient of the prestigious Distinguished Estate Planner award from the National Association of Estate Planners and Councils and is listed in Chambers USA, Best Lawyers in America, New York Superlawyers and Worth’s Top 100 Lawyers. Mr. Rothschild is also licensed as a Certified Public Accountant.
John E. Sullivan III is a founding member of the Cleveland law firm of Sullivan & Sullivan, Ltd. Mr. Sullivan represents debtors, creditors, and other interested parties in collections, bankruptcy and asset protection matters. As part of his practice, he advises clients on the use of onshore and offshore trusts and companies as well as the use of U.S. exempt property laws, and is actively involved in structuring and implementing asset protection plans. He is also involved in estate and probate matters. Mr. Sullivan frequently speaks on matters related to asset protection and asset recovery, and has numerous publications to his credit, including a law review article cited in the annotations to the Uniform Fraudulent Transfers Act and another law review article cited in the official Commissioner’s Comments to the Uniform Trust Code.
John A. Terrill II, a partner at Heckscher, Teillon, Terrill & Sager, P.C., graduated from Dartmouth College magna cum laude and Phi Beta Kappa in 1973 and from the University of Pennsylvania Law School cum laude in 1976, where he was an associate editor of The Law Review. Jack practiced in the Trust and Estate Department at Duane, Morris & Heckscher, where he was a partner from 1983 until 1994. A Fellow of the American College of Trust and Estate Counsel, he chaired the Probate and Trust Law Section of the Philadelphia Bar Association in 1995. Jack is on the faculty of the Graduate Tax Program at Villanova University Law School.
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Irrevocable Income-Only Asset Protection Trusts • General Considerations • Practical Considerations • Using Income-Only Trusts for Medicaid Asset Protection • Basic Overview of Medicaid Asset Protection Planning • Purpose of Using Income-Only Trusts for Medicaid • Statutory Authorization • Principal Distribution Provision • Cases Illustrating Prohibition of Retained Interest in Corpus • Income Distribution Provisions • Adjustments Between Principal and Income • Medicaid Estate Recovery • Can an Income-Only Trust be Revoked? • Definition of Irrevocable • Revocation by Consent • Trustee Considerations • Can Settlor Serve as Trustee? • Trustee is a Fiduciary • Settlor Can Remove and Replace Trustee • Source of Confusion • Statutes, Cases, and Commentary • Summary • Uniform Trust Code • Restatement of Trusts, Second • Legal Treatises Supporting Use of IOTs for General Asset Protection • Legal Treatises Supporting Use of IOTs for Medicaid Asset Protection • Cases Supporting Use of IOTs • Specific Features of Income-Only Trusts • Taxation of Income-Only Trusts • Income Tax • Income Tax Reporting • Gift Tax • Gift Tax Reporting • Estate Tax • Step Up in Basis • Capital Gains Exclusion for Sale of Principal Residence • Comparison of IOTs with Offshore APTs and Domestic APTs • Clearing Up the Confusion About "Self-Settled" Trusts • Offshore Asset Protection Trusts • Limitation of Offshore Asset Protection Trusts • Domestic Asset Protection Trusts • Risks and Limitations of DAPTs • Feature-by-Feature Comparison of DAPTs to IOTs • Taxation of DAPTs • In General • Incomplete Gift - Limited Power to Appoint Remainder • Incomplete Gift - Retained Right to Receive Income • Completed Gift - The Goal of Most DAPT Clients • Fraudulent Transfers • Applicability • UFTA • BAPCPA • Fraudulent Transfers as to Future Creditors • Is Medicaid a Creditor • Planning and Defending Domestic Asset-Protection Trusts • Asset-Protection Planning • Preventing Fraudulent Transfers • Irrevocable Income-Only Trust