Asset Protection in Minnesota, a Breakfast Event

Why Are Asset Protection Trusts Popular in California but not Minnesota?

Alliance Trust Company of Nevada is partnering with BlackRock and Redden Law to host a Breakfast Event for a discussion on Asset Protection in Minnesota: From market to legal risks; Who is at risk and for how much?; Is it true that a creditor can seize my car for $4,600?; My IRA for $69,000?

Our expert panel will lead a lively discussion.

Learn more about Asset Protection Trusts in Nevada

Details:

Speakers

Brian Wevergergh – Market Leader, BlackRock

Michael Redden – Attorney, Redden Law

Greg Crawford – President, Alliance Trust Company of Nevada

Agenda

  • Market outlook and investment implications of balancing risk and reward – What can I do to protect myself?
  • What other risks are impacting my wealth – Is it true that a creditor can seize my brand-new Suburban for $4,600? What about my IRA or my house?
  • What can I do to protect myself and my family?
    • Protecting Wealth: Different strategies to manage risk – from LLCs to Asset Protection Trusts
    • Asset Protection Trust basics: Why, What, Who, and How
    • Case study
    • Why are Asset Protection Trusts popular in California but not Minnesota?

Who Should Attend:

  • Attorneys
  • Financial Advisors
  • Wealth Managers
  • Small Business Owners / Doctors / Dentists

Speaker Bios

Brian Weverbergh

Brian Weverbergh, CIMA® is a Market Leader with BlackRock. He serves financial advisors in the states of Minnesota, North Dakota and South Dakota. Prior to joining the firm in 2016, he was a Regional Vice President for Allianz Global Investors based in Minneapolis, MN.

Mr. Weverbergh earned the Certified Investment Management Analyst (CIMA®) designation through the Investment Management Consultants Association in conjunction with the Yale School of Management. He earned a B.S. in Business Administration with a concentration in Finance from Ithaca College.

Michael Redden

Michael Redden is a veteran of the United States Air Force.  He served as an Intelligence Analyst with the 31 FW in Aviano, Italy.  After the Air Force, Michael returned to Minnesota where he attended law school at Hamline University School of Law.  Michael lives in New Hope with his wife and four sons while coaching youth wrestling. In the past, Michael worked at Prudential Insurance Company of America where he helped clients of the company protect their assets.  While at Prudential, Michael was a registered representative of Pruco Securities and held his Series 6 and Series 63 securities designations.

Michael has a passion for helping licensed professionals preserve their wealth for the next generation. Since tort reform is unlikely, it is more important than ever to have a plan to protect your wealth from lawsuits. He has also served as an independent Trustee/fiduciary in the past.  Michael’s practice has a special focus on Integrated Estate Planning. He combines effective Asset Protection techniques with other Estate Planning strategies in order to protect the assets of individuals and businesses from lawsuits.

Greg Crawford

As president of Alliance Trust Company of Nevada, Gregory E. Crawford develops strategy, drives growth, and oversees operations. For two decades, Greg has designed and implemented asset management and asset protection plans for multi-generational families in the United States and abroad for some of the largest institutions in the world. This work involves comprehensive financial planning, portfolio design, business entity structure strategy, and sophisticated estate planning techniques.

Greg is a regular speaker on the benefits and advantages of Nevada trust situs at law school conferences around the country. A native of Menlo Park, California, Greg holds a Bachelor of Arts from the University of California, Davis, and a Master of Health Administration from the University of Minnesota. Greg is certified in financial planning by Boston University and is a Registered Trust and Estate Practitioner and a Certified Financial Planner.

Mr. Crawford has regularly been quoted in publications such as The Wall Street Journal, The New York Times, The Financial Times of London, and has appeared as an on-air expert on CNBC, Bloomberg and ABC World News Tonight.

Greg has lived in Reno since 2000 and is married with two children. He is a member of Our Lady of the Snows Catholic Church, the Reno Angels Investor Group, the Entrepreneur’s Organization, Reno Sunrise Rotary, and the Reno Tahoe Winter Games Coalition.

Save the Date:

  • March 12, 2019 at 7:30-9:00am
  • Location – Seven Steakhouse, 700 Hennepin Ave, Minneapolis, MN 55403
  • Schedule: 7:30-8:00am registration and coffee, 8-9am program
  • Cost: Free

Can Incomplete Non-Grantor Trusts (INGs) Really Save Wealthy Californians Money on SALT?

A Proactive Approach to Wealth Management May provide Families Significant Savings on State and Local Income Tax (SALT)

Taxpayers could be scrambling after the Federal Tax Reform passed at the end of 2018 capping state and local income tax (SALT) deductions at $10,000. For many wealthy families in high-tax states, this deduction will only cover property tax and won’t touch capital gain income or other investment income.

While California is attempting to pass the Protect California Taxpayers Act which allows taxpayers to deduct some taxes as “charitable contributions,” for many the bill feels like a workaround or even tax evasion, and it’s unclear whether the IRS will allow such a bill to pass.

Rather than waiting for legislation to pass that is more protective of taxpayers, many residents from states like California are considering leaving the state or taking other measures to protect their wealth.

Moving out-of-state is not a feasible option for many. However, moving assets out of a high-tax state may be an ideal solution.

What are My Options?

Traditionally, grantors gift away income-generating investments to beneficiaries who live in tax-favored states. However, these gifts often incur federal gift tax or utilize some of the grantor’s exclusion for a gift and estate tax.

A newer option is the NING trust or Nevada Incomplete Gift Non-Grantor Trust. There are several tax-sheltered states in the U.S., but only a few allow Incomplete Gift Non-Grantor Trusts and the most tax-favored state for such a trust is Nevada. The NING allows a trust to avoid taxation by the grantor’s home state until assets are distributed, or, rather, the gift is complete.

Why Choose a NING?

By transferring assets into a NING, the assets become a separate taxpayer receiving the tax benefits of Nevada. Because transfers are not completed gifts, there is no federal gift tax exclusion.

For those who live in high-income tax states, such as California, establishing a NING to transfer some of the tax burdens to Nevada allows them to take advantage of Nevada’s no income tax benefit.

Additionally, Nevada has the most robust creditor protection and protection as its considered a “spendthrift trust” in Nevada. Nevada also has tested protection from divorcing spouses which has held up in Nevada Supreme Court with Klabacka v. Nelson.

The Components of a NING Trust

An ING trust only works in a state with no state income tax. Otherwise, a tax will apply to the trust. Nevada is the preferred state for an ING trust as it carries many other protections and benefits to grantors and beneficiaries.

ING trusts cannot be grantor trusts under the income tax laws of the grantor’s state of residence. Only states that allow self-settled spendthrift trusts (asset protection trusts) can form non-grantor trusts enabling the settlor to be a beneficiary, such as Nevada.

The incomplete gift portion of the ING trust is critical to ensure that the contributions to the trust are not treated as a gift and subject to federal gift tax. It’s essential for the settlor to have lifetime power of appointment and post-death power – which the ING trust allows.

NING trusts will be subject to federal estate tax when the settlor dies, however, if the estate is not large enough to trigger federal estate tax, this is not an issue.

Who Should Consider Establishing a NING

Although a NING has many benefits, the benefits may not be for every grantor. Here are some of the criteria which would make someone a good candidate for a NING trust.

  • Grantor lives in a high-income state – such as California.
  • Grantor carries intangible assets with substantial tax exposure.
  • Grantors in the highest federal tax bracket who would remain in that bracket after transferring assets to a NING.

Should YOU Establish a NING?

NING trusts can be an excellent option for those looking to preserve wealth and protect it from their state’s high tax rates. Since changes to SALT are recent, there are still some questions about how the IRS will respond to attempts to shield wealth from taxes. However, the NING appears to be the best option to do so.

It’s important to work with a trusted advisory team or trust company that is familiar with Nevada Tax Law and NINGs to ensure it’s the right choice for your family and that you’re gaining the most benefit possible.

At Alliance Trust Company, we’re experts in Nevada Trust Law and have a network of attorneys specializing in NINGs. We are available to walk you through your particular situation regarding NINGs. Contact us to learn more about preserving your wealth in the state of Nevada.

STEP Orange County Conference 2019 Session Highlights

Summarizing STEP Orange County 2019, February 4 – 5

Over 225 attendees and 22 exhibiting companies came together at the Fashion Island Hotel in Newport Beach, CA for the Orange County Chapter of STEP’s 8th Annual Institute On Tax, Estate Planning, and the World Economy on February 4-5, 2019.

After a very disappointing Super Bowl on Sunday, the conference kicked off on Monday morning in rainy Southern California. Discussions covered the changes in tax law, including Opportunity Zone Funds, domestic asset protection, and international issues.

Despite the problems in Washington, D.C., the U.S. is still being viewed as an attractive bastion for foreign families given its stability, attractive investment climate, and other benefits.

STEP OC 2019 Monday Morning Sessions Recap

Trust Law and Tax Differences Between the U.S. and Foreign Countries

After the welcoming remarks, Read Moore of McDermott Will & Emery began with a discussion on taxation of trusts with foreign implications. Moore mentioned the differences between trust laws between the U.S. and foreign countries and the challenges these differences could pose.

In such cases, the legal environment should be carefully analyzed including the tax situation of both countries in order to recommend the right structure for each client.

What’s Changed in Life Insurance and ILIT Trusts

Colleen Barney, a partner at Albrecht & Barney discussed life insurance and ILIT trusts and noted that her practice had gone from 100 ILIT trusts a year before the 2017 tax law change to just 10 a year.

She highlighted that the Crummey notices are actually not required by case law, the only part that is required is the ability of the beneficiary to be able to withdraw the funds within a reasonable time, whether they are actually aware of it or not.

She also discussed items that can be made to make ILITs more flexible, such as trust protector features.

Charitable Planning Under the Tax Cuts and Jobs Act

Lawrence P. Katzenstein, a partner at Thompson Coburn, covered charitable planning under the Tax Cuts and Jobs Act. He discussed strategies, such as the bunching of deductions, to breach the new standard deduction in some years.

Katzenstein also went over the new section 4943(g) (the Paul Newman rule) and how foundations are no longer required to dispose of companies under certain circumstances.

When to Use the Unified Credit

Andrew M. Katzenstein, a partner at Proskauer, highlighted how the unified credit will ultimately come down from the current $11.2m in 2025 or earlier, depending on how the politics will play out in the early 2020s.

Katzenstein recommends that clients start using it now before it is gone. He also discussed Qualified Opportunity Zone Funds and the importance of clients carefully analyzing the underlying investments over the tax benefits, which can be worthless in a bad investment scenario. It’s suggested to carefully analyze the income tax benefit vs. estate taxes.

Strategies to Resolve Conflict Within Families

The Honorable James P. Gray (Ret.), a mediator for ADR Services, talked over lunch about how minimizing surprises and overcommunicating within families can resolve many conflicts before they arise.

Families can use strategies such as family meetings and neutral accountants pre-death to reduce family conflicts at a very difficult time for everyone.

Afternoon STEP OC Sessions Recap

Strategies for High Net-Worth Mexican Families

Enrique Hernandez-Pulido, a partner at Procopio, discussed high net-worth Mexican families and the complexities surrounding their situations with first, second, and third generations being a mix of citizenships between U.S. and Mexico.

Hernandez-Pulido covered the surrounding tax and estate planning strategies, including the fact that Mexico has no inheritance tax for Mexican residents, but 25% tax if a Mexican resident inherits from a U.S. trust. This could put a lot of pressure on advisors to make sure they stay updated on family movements and employ the right strategies.

The new post-election climate, Common Reporting Standards (CRS), privacy needs, and potential new inheritance tax keep wealthy families in Mexico interested in US structures.

A Creditor’s View on Asset Protection Trusts

Jay D. Adkisson, a partner at Riser Adkisson, capped off the first day with a creditor’s view on asset protection trusts and his approach to pursuing them.

Adkisson’s approach can include private investigators, finding debtor’s pressure points, and pursuing fraudulent conveyance as a strategy.

STEP OC 2019 Monday Morning Sessions Recap

Life Insurance as a Portfolio Stabilization Tool

Leigh Harter, Managing Director at NFP Insurance Solutions started Tuesday morning off with a discussion on life insurance as a portfolio stabilization tool.

Harter spoke with Paul S. Lee, Global Fiduciary Strategist at Northern Trust, about Qualified Small Business Stock (QSBS) strategies for business owners.

The History of FACTA and the New OECD Initiative

Joseph A. Field, Senior Counsel at Pillsbury, discussed the history of FATCA and how it gave rise to CRS, and the 3,200 bilateral agreements the 110 nations have put in place.

Field explained that the U.S. is not a signatory and is leading to capital being moved from across the world to the U.S. Additionally, CRS is not balancing privacy vs. transparency but has almost reached Orwellian proportions.

Field also discussed the new OECD initiative that would criminalize advising clients avoiding CRS and its chilling impact on advisors. He highlighted the attractiveness of the U.S., given our stability (despite the political climate in D.C.), the world’s largest investment market, the school system, inexpensive real estate vs. Europe and Asia, a favorable tax system for foreigners, and how to structure around some of the pitfalls.

He ended his chat with a question: If advisors need to police their clients, shouldn’t they have a gun and a badge?

How Families Transfer Both Wealth and Values Through Generations

Justin Miller, National Wealth Strategist at BNY Mellon talked about how successful families (think Rothchilds) vs. unsuccessful (think Vanderbilts) transfer not only wealth but values to next generations.

Most families are adept at transferring financial capital but struggle with non-financial capital (think family values) which leads to significant loss of financial capital by the third generation.

Strategies such as having a team of advisors that work together, good investment advice, smart tax planning, and most importantly a focus on family governance and giving, lead to family harmony and success for future generations.

Selecting the Best Jurisdiction for Domestic Asset Protection Trusts

Steven J. Oshins, a partner at Oshins & Associates, discussed selecting the best jurisdiction for Domestic Asset Protection Trusts, and how they work for the 17 states that have enacted DAPT statutes, but not for the other 33 states.

A hybrid structure with third-party beneficiaries is superior in many cases and Oshins discussed how they can be structured to still provide flexibility for grantors and their families.

Oshins also talked about how after 20+ years of DAPTs, there still isn’t a case that has pierced the trust in a non-fraudulent situation, and how DAPTs are leading to quick settlements, which is preferable to long litigation for most clients.

Wrapping Up STEP OC 2019

The conference wrapped up with Robert Keebler, a partner at Keebler & Associates, discussing the Impact of the IRC Section 199A Deduction on Estate Planning.

Overall, the two-day conference was well-attended, informative, and successful and the content of each presentation was very well received by the attendees.

For additional details from the 2019 STEP OC Conference or to learn more about the benefits of Nevada’s trust structures, contact us today.

Third Annual STEP Alpine Conference January 17 & 18, 2019 Interlaken, SUI

STEP Alpine 2019 Sessions Recap

A well-attended and lively STEP Alpine Conference recently wrapped up at the Congress Center, Kursall, in Interlaken, Switzerland. Both Martine Rhoda, Director of European Development, and Greg Crawford, President of Alliance Trust Company of Nevada, attended the two-day event.

STEP Alpine Highlights

Opening Keynote

After the opening remarks and welcoming the Keynote speaker, Elhad As Sy, Secretary General, International Federation of Red Cross and Red Crescent Societies took the stage.

The Secretary-General reminded us all that global problems are much harder to solve in a fractured world, and that no one is truly isolated from global issues.

Those unfortunate enough to be born in situations (and regions or countries) are suffering misfortune that is beyond their control. What they want is what we all want–and should collectively strive for–freedom from disease and stability and peace.

These very basic desires are commonalities of humanity. The Secretary-General thanked the audience and those benefactors that the professionals in the audience represent for the continued support of these efforts.

It was an inspiring beginning to the two-day affair.

Compliance and Privacy, Still Prevailing Themes

The theme of the conference was two sides of the same coin. Both what is new and what is consistent in our industry. Day one focused on the “new,” the continued increasing regulatory and compliance requirements. Day two focused on the original goals of the field: providing valuable services to clients.

The first industry-focused presentation began with three presenters and a panel discussion from David Russell, Filipino Noseda, and Count Francis von Seilern-Aspang.

It was noted that the treatment of trusts, assets and cross-border families are now quite inconsistent with several other trends towards protecting information and personal privacy in the EU region.

GDPR is almost 100% inconsistent with the CRS, and yet seems to be okay because of “fiscal voyeurism” practiced by the media and certain tax authorities. Recent rulings by the European Court of Justice appear to support a fundamental right to privacy. The audience noted the hypocrisy that elected officials claim a right to privacy for themselves, but not for commoners.

Budgeting Challenges Governments

The government budget problems facing many of the developed countries may be at the root of the issue. Governments are not generally pursuing growth strategies and instead are appealing to voter frustration and populist uprisings. The political will to debate economic policies is minimal when it is much easier and more popular to scapegoat particular classes of people for political gain (e.g., immigrants, the upper-class).

Thus, in this environment, selective “transparency” for certain types of people–the wealthy–is now politically expedient.

The new level and detail of information gathered by multiple firms and government agencies are staggering and often redundant. Information is the new oil in the Odeon economy, and information has become extremely valuable. It is a matter of time before various databases are hacked, or the information gathered is sold into the black market (see the recent sale of personal information by Argentinian tax authorities).

While the GDPR has significant penalties for companies which fail to protect their data, there are no such penalties for governments.

Yet, despite all of this information being gathered in the name of transparency, it is not clear that this will lead to higher tax compliance. The analysis of the U.S.A.’s FATCA efforts and initial data coming from the OECD suggest that the amounts of levels of tax evasion ballyhooed to get both FATCA and the CRS passed were “exaggerated’” to put it mildly.

Looking Ahead: Trust Structures

So, what then does the future hold? Trusts have been in place for 1,000 or more years, and continue to be needed by families at all levels of wealth. Competence, expertise, professionalism, structure, and wisdom are not a given in all families and can be most effectively brought to the table or bolstered in the form of a trust structure.

Trust structures are needed now more than ever. They can provide solutions and continuity for the families who need them. Those that continue to advise families on how to help solve these age-old problems will continue to be in demand.

Combating Tax Fraud In the U.K.

The next presentation, “Data Exchange: Its Fate and Its Risks” began after lunch. Tessa Lorimer (Withers, U.K., Consultant) notes that the U.K. has dramatically increased its tax investigation capabilities now that it receives information pursuant to the Common Reporting Standards (CRS).

We reached out to Lorimer for more insight:

“The information will give Her Majesty’s Revenue and Customs (HMRC) reasonable grounds to suspect tax fraud and thereby access the international criminal treaties. The criminal treaties allow HMRC to send a Letter of Request to foreign jurisdictions requesting the use of coercive powers to have evidence remitted to the U.K. suspects located and extradited in the U.K. to stand trial and assets are restrained and confiscated abroad.

“Recent U.K. legislation has dramatically increased both criminal and civil penalties for tax fraud in anticipation of the aggressive international tax investigations of the future.”

David Walbank, QC, described the significantly increased risk to people who become subject to a CRS Criminal Investigation. Most significantly, the Criminal Finances Act of 2017 reverses the burden of proof in such cases. Additionally, the evidentiary trends regarding search and seizure are tending to give more power to the authorities. These powers now border on draconian “Unexplained Wealth Orders,” and he expects it authorizes to launch high-profile, headline-grabbing cases in the future.

Securing Enterprise Data

The presentation concluded with some practical insights into how to secure enterprise data from Dr. Cristian Zamfir, COO of Cyberhaven. We reached out to Dr. Zamfir for insight, and he stated, “Data is now the common denominator of most corporate risks. The foundation for managing these risks is to discover where sensitive data is, who is accessing it, and how it is processed: in other words “data flow mapping,” which is now done manually. The answer to modern risk management in the context of GDPR and other recent compliance legislation is to automate the data flow mapping process.”

Visit Cyberhaven to learn more.

New Regulatory Developments in 2020

The next presentation covered “New Developments On the Regulatory Front” and began with an update on new Swiss Trustee regulations coming into effect in 2020. David Wilson, partner at Schellenberg Wittmer, noted that 2020 is designed to be a transition period for Swiss trustees, who have not been licensed to date.

Wilson comments that “Trustees’ anti-money laundering policies remain but, going forward, their implementation will be supervised by Supervisory Organizations, that will replace the existing self-regulatory authorities.”

Wilson’s session garnered a lot of attention as his audience took extensive notes.

Global Regulatory Approaches

Richard Grasby then contrasted different types of regulatory approaches to the industry from jurisdictions around the globe. Regulators range from lighter approaches that are really just focused on AML policies, to large scope requirements that delve into the quality of trust operations and depth and experience of personnel.

Private Trust Companies, called Family Trust Companies in Nevada (NRS 669A), were raised as a possible structure for some as they can in some instances be exempt from pending Swiss registration requirements. Business and family ties are vital factors to consider for a Private Trust Company, which can be likened loosely to a single family office.

Fabianne De Vos Burchart cautioned that PTCs must be run professionally, or he fears that many will be challenged in the future for being little more than an elaborate nominee agreement.

Blockchain as a Trust Asset Worldwide

The final presentation of day one is a very popular topic at recent STEP Conferences around the world, Blockchain.

Philipp Buchel discussed the original benefits of bitcoin and the blockchain, a no Third-party, low fee currency, and transfer network. Unlike traditional assets, there could initially be no freezing or censorship. The blockchain itself is simply a ledger/database structure to prevent docile-spending.

How Blockchain Laws Are Evolving

But the laws are evolving differently in different countries regarding property rights in this new class of asset. In the U.K. the law is developing so that the coin holder is the owner, while in the U.S.A. courts are taking the position that the private key or code that unlocks the coin(s) is the legal owner. Regardless, storage is the most critical issue.

To date, trustees have been unwilling to hold the private keys to these assets. Bitcoin and other currencies titled to trusts are being done via LLCs, or special purpose trusts to limit trustee liability. However, it is clear that clients will need better answers going forward than the current trust company solutions.

The day concluded by noting that these are no longer just issues for early adopters or technology geeks; companies such as the shipping company Maersk which recently shifted its container procurement and management system to the blockchain are expecting to save hundreds of millions of Euros a year as a result.

After a terrific cocktail hour and dinner sponsored by Schellenberg Wittmer, the 300+ attendees turned in for the evening. Special congratulations go out to the STEP Swiss and Liechtenstein Federation Student Award winners who were recognized during dinner.

Day Two – Serving Client Needs

Day Two shifted the theme of the conference from regulation and compliance to serving client needs into the future.

Uncovering the Truth About Lost Family Fortunes

The first day two presentation, “The Next Generation: Challenges and Opportunities” covered a phenomenon that cuts across all societies and commonality of humanity discussed at the conference open by the Supreme General- it is the sad but simple fact that by the fourth generation, most family fortunes have been lost or squandered.

The psychology of attachment between a parent and a child was discussed in the context of tremendously busy, international families. Communication in these situations is commonly low, and children are patronized for too long.

A classic case study of an Asian family was discussed, as well as the fact that many financially successful parents just assume that their children will have the same passion and interest in the family enterprises that they do. As practitioners, we know this is often not the case. Parents who are strong role models need to allow children to find their own path.

It was a very skilled and diversified panel, with Her Supreme Highness Therese of Liechtenstein, Joshua Seth Rubenstein of Katten Muchin in New York and Dr. Marina Walter, MD from the University of Geneva.

We had to step out for networking meetings during the next two presentations which covered the mental capacity of aging clients and the special needs of globetrotting families.

The Swiss-U.K. Axis

The final presentation before lunch was titled the “Swiss-U.K. Axis.” It is often said that the U.S. and the U.K. have a historic “special relationship,” but there is also one between the Island of the U.K., and the island of stability in continental Europe, Switzerland.

Jane Owen, Her Majesty’s Ambassador to the Swiss Confederation and the Principality of Liechtenstein noted that there are over 150 flights from various U.K. airports to airports in Switzerland each and every day. Much of the discussion focused on what the U.K. could learn from Switzerland in advance of Brexit while noting much remains uncertain.

Global News

After lunch, the agenda continued with “News from Switzerland, Liechtenstein and the rest of the World.”

Joshua Rubinstein led off the discussion with an update on the U.S.A. tax law changes, and how it helps business owners. Litigation trends regarding trust issues in the U.S.A. are also increasing, mainly as age and dynasty trusts interplay with inheritance issues and expectations.

Modern relationships and 2nd and 3rd marriages only increase potential family friction and legal contests. It was also noted that the legal erosion of attorney-client privilege is eroding in the U.S. as well, but not to the same degree as other jurisdictions.

One important point – do not use a work email address to correspond on personal litigation matters. Create a personal email account specific to the case and only use it for sensitive correspondence to better protect privileged documents.

New Developments Worldwide

The rest of the world came next, with David Russell updating the conference on new developments in the Middle East. Jurisdictions there have taken different approaches to adopt model legislation, noting that Dubai has adopted a style of the American Uniform Trust Code.

There was actually a technical glitch in this section, so if you would like a copy of the slides or to discuss these sections further, please let us know.

Liechtenstein and Switzerland Updates

Saving the best for last, the update on Liechtenstein and Switzerland came next. Patrick Brunhart noted that this year is the 300th Anniversary of the Principality and its reputation continues to improve around the globe. The country will continue to be a small but important financial center in the future.

Switzerland will continue to be a jurisdiction offering top-end solutions to sophisticated clients. The country can never become a low-cost “factory” solution provider, as the cost of doing business here is simply too high to compete in that segment of the marketplace.

Influencing the Debate – Swiss Trust Laws and Regulations

The last presentation of the day blended many of the themes of the first two days and sparked a lively and important discussion to wrap up the conference. The presentation title was “The Great New Questions for Trustees – Your Chance to Influence the Debate.”

A discussion of the new regulations facing Swiss Trustees began the presentation, reviewing some of the highlights of the discussion from the day before.

The prospect of specific Swiss trust laws was discussed, and in classic Swiss fashion, an impromptu vote was held. The audience generally felt that the regulation of trustees was a good development, while they were less enthusiastic about new Swiss trust statues. The overall goals and purpose of regulations were also discussed in the context of protecting clients from bad actors in the world of trusts, and the practitioners in the room from being tainted by bad actors as well.

Looking Forward to STEP Alpine 2020

With that, the Third Annual STEP Alpine Conference concluded. The Fourth Annual STEP Alpine Conference is tentatively scheduled for the same location on January 16 & 17, 2020. STEP should confirm this in the weeks to come, and we at Alliance Trust Company of Nevada look forward to seeing you there!

If you would like to discuss the conference details further, or how Nevada trust structures can benefit your clients, please contact Martine Rhoda in Geneva at (add cell phone and email).

Supreme Court to Address State Taxation of Trusts

Why Two State Trust Cases Have Escalated to the SCOTUS and What That Could Mean for Estate Planning

BREAKING NEWS from the Supreme Court in Washington D.C. While much of the estate planning community is at the Heckerling conference in Orlando, the U.S. Supreme Court of the United States (SCOTUS) decided on Friday to grant a writ of certiorari in The Kimberley Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue case.

The Cases Broken Down

The crux of the Kaestner case is whether the state of North Carolina should be able to constitutionally tax trusts where the only connection to the state is that the beneficiary is a resident. In the state of North Carolina, the taxpayer won throughout the entire court system, but the state appealed successfully to the US Supreme Court.

Another similar case, Fielding v. Commissioner of Revenue, is being appealed to the SCOTUS with taxpayer response due on January 21st. The facts of the Fielding case are broader than the Kaestner case, so the outcome is of interest to the greater estate planning community. The Fielding case addresses whether the state can tax a trust where the grantor was a resident of a ate during the creation of the trust, and one beneficiary was a Minnesota resident, but there are no other ties to the state of Minnesota within the trust itself.

Like Kaestner, Fielding won in the Minnesota state courts, and the state appealed to the SCOTUS.

It has been decades since the SCOTUS has addressed the state taxation of trusts. However, there are quite a few cases beyond the Kaestner case with address state trust taxation, including:

  • McCulloch v. Franchise Tax board (Calif, 1964)
  • Taylor v. State Tax Commissioner (N.Y. 1981)
  • Pennoyer v. Taxation Div. Dir. (N.J. 1983)
  • Potter v. Taxation Div. Dir. (N.J. 1983)
  • In re Swift (Mo. 1987)
  • Blue v. Department of Treasury (Mich. 1990)
  • Westfall v. Director of Revenue (Mo. 1991)
  • 1992, Quill Corporation v. North Dakota. (1992)
  • District of Columbia v. Chase Manhattan Bank (1997)
  • Chase Manhattan Bank v. Gavin 1999
  • South Dakota v. Wayfair 2018

Constitutional Issues

Three older U.S. Supreme Court cases all dating before 1947 addressed the constitutional issues with state taxation. Safe Deposit and Trust Company v. Virginia held that the Due Process Clause prohibits a state from taxing a trust based on the residence of beneficiaries.

In Guaranty Trust Co. v. Virginia the court held that Virginia could tax residence beneficiaries on distributions they received from a non-resident trust.

Greenough v. Tax Assessors of Newport held that the Due Process Clause did not prevent the city of Newport from imposing a personal property tax on a resident trustee of an otherwise non-resident trust.

It is probably unconstitutional for a state to tax an otherwise non-resident trust solely because the guarantor was a resident. However, if that state’s court system is utilized, for example, because of a probate proceeding in that state, chances are better than the state does have authority to tax the trust.

The trust industry is keenly following the Kaestner and Fielding cases, and it will be interesting to see whether they are heard together or separately in the SCOTUS, presuming the court will also hear the Fielding case.

Alliance Trust Company is following both cases closely and will provide updates as new developments arise.

Nevada Trust and Estate Planning Advantages

Nevada’s Beneficial Trust Laws Set it Apart and Provide Strong but Flexible Protection

When it comes to asset protection and managing estates, Nevada stands alone paving the way for other states. Several recent cases such as Klabacka v Nelson and Kloiber v Kloiber have set Nevada apart from other states with similarly beneficial trust laws and allowing Nevada to emerge with the most iron-clad wealth protection available in the U.S.

Nevada should be a serious contender when considering both wealth management and asset protection whether you are a U.S. or non-U.S. citizen. Nevada boasts additional benefits such as Dynasty trust provisions lasting up to 365 years and Domestic Asset Protection Trusts (DAPT’s), also known as Self-Settled Spendthrift Trusts (SSST), allowing you to protect your assets and wealth more than any other state.

With the addition of an abbreviated statute of limitations until assets transfer to an SSST and superior protection from creditors, which is unique to Nevada, the advantages of establishing your wealth and assets in the state of Nevada deserve a deeper look.

Nevada DAPT and DAPT Hybrid

Domestic Asset Protection Trusts (DAPT)

A relatively new type of trust, the DAPT is different because it allows the settlor to also be the beneficiary. This is beneficial for planning and allows for much more flexibility. These trusts also play a strategic role in income and estate taxes.

Few states permit DAPT’s and even fewer have as short of a seasoning period as Nevada (two years). To receive the benefits of a DAPT in Nevada, you must establish the trust in Nevada; this is possible without relocation if you utilize a corporate trustee such as Alliance Trust.

The Nevada DAPT is irrevocable. However, there is quite a bit of flexibility within a Nevada DAPT.

Hybrid DAPT

Most people believe that the Nevada DAPT will hold in court though it has never entirely gone through the court system. Several Nevada cases prove that Nevada honors DAPTs, but if you desire extra caution, a Hybrid DAPT is a simple option that reduces the risk of creditor access to assets and wealth.

In a Hybrid DAPT, you do not initially add the settlor as a beneficiary, but you can modify this later. This arrangement limits the uncertainty of a traditional DAPT.

Flexible Decanting

While the term “irrevocable trust” sounds rigid and unchangeable, the process of decanting is a popular way to change the terms of the trust and increase flexibility.

Trust decanting allows you to move assets from one trust to another and essentially modernize the trust without court approval or notice to beneficiaries.

Often, terms of a trust need to be revised to reflect the circumstances of the family or if the trustee has changed their mind about the old terms.

Learn more about Nevada Trust Decanting here.

Save Big on State Income Tax

Nevada is one of a few states with no state income tax, in theory, establishing your trust in the state of Nevada should allow you to save on state income tax after the two-year seasoning period. However, there are steps you need to take to ensure this transition isn’t viewed as tax evasion.

The most popular way to save on taxes and establish your trust in Nevada is by using a Nevada Incomplete Gift Non-Grantor Trust (NING). NINGs also help with estate planning and shield your trust from creditors. The NING trust has held up in court unlike its counterpart the DING (Deleware Incomplete Non-Grantor Trust) and is the preferable choice for wealth and asset management.

Learn more about saving on state income tax using a NING here.

MOre Nevada Tax Advantages

State income tax savings are not the only benefit of establishing your trust in Nevada, Nevada also protects from federal or state transfer tax, and for Nevada Dynasty Trusts, the state shields assets from income tax through the 365 year period.

Additionally, Nevada does not tax trust income which is distributed to beneficiaries nor assess tax on the value of intangible personal property within a trust.

Nevada’s tax advantages keep slow erosion of assets and wealth via taxes from eating into the trust.

Protection from Creditors

In both the case of Klabacka v Nelson, 133 Nev. Adv. Op. (May25, 2017): Nevada DAPT Protects Against Spousal/Child Support Claims, and the matter of Daniel Kloiber Dynasty Trust u/a/d December 20, 2002 (Court of chancery Delaware) divorcing spouses attempted to tap trusts and receive access to assets.

The Klabacka v Nelson case took place in Nevada, and Nevada’s courts protected the trust, keeping the divorcing spouse from gaining access to the trust.

In the Kloiber v Kloiber case, the state of Delaware granted access to the ex-spouse weakening Delaware’s trust laws and establishing Nevada as the most protective state and superior choice.

Nevada is the only state with creditor protection precedents set firmly in favor of trusts.

Nevada Dynasty Trusts

Nevada Dynasty Trusts can last up to 365 years and allow generation-skipping-transfer tax exemption to help limit estate tax liabilities, sometimes eliminating them.

With a Nevada Dynasty Trust, your assets are subject to tax (or lifetime exemption) once upon transfer and then not again at the estate level allowing many generations to enjoy gifted assets.

Domestic and international families alike can enjoy the benefits of Nevada Dynasty Trusts and favorable estate tax laws for an extended period of time.

Take Advantage of Nevada’s Trust Laws

If you’re considering establishing a trust or estate in Nevada, it’s highly advisable to speak with a professional who understands Nevada’s Trust Laws and statutes.

Alliance Trust Company of Nevada works with a variety of professionals around the world to provide flexible trustee services with the benefit of Nevada trust situs.

Contact us to understand further how establishing your trust in Nevada will benefit your family and how you may take advantage of some of the best trust laws in the world.

STEP ASIA Hong Kong Recap

A Breakdown of New and Important Information Discussed at STEP ASIA 2018

STEP ASIA at the Grand Hyatt in Hong Kong took place from November 19th-21st and was a sold out event despite only 12 Americans attending (due to the event taking place over the American Thanksgiving Holiday). Because of the interest in the event and to increase the potential size, STEP Asia is considering moving the conference to a hotel across the harbor in Kowloon in 2020. STEP Asia 2019 will take place in Singapore.

Tuesday Presentations

STEP began by updating the organization’s standardized membership qualifications across jurisdictions. The industry continues to evolve rapidly from a regulatory perspective.

Mandatory Disclosure Rules

The conference hit the ground running with a presentation from Jonathan Midgley followed by a panel discussion of Mandatory Disclosure Rules (MDRs).

The digitalization of information makes personal information sharing (CRS and MDRs) possible, but that’s not necessarily a good thing for privacy.

The discussion noted that personal privacy concerns are swinging the pendulum back to “common decency,” but has overcorrected towards disclosure and has a long way to go to recover.

The Organisation for Economic Co-operation and Development’s (OECD) 40-page rulebook regarding MDR’s for marketing, promoting, and service provider retroactive disclosure rules are legally troubling. There are currently no protocols for what is a reportable event, and it can cover a broad range of activities.

The creation of a database which will house names and demographic information without the knowledge of the accused is profoundly concerning. The fundamentals of substantive and procedural criminal law are violated. This should trouble all, as severe principals and freedoms are being violated.

While advising wealthy cross-border families is not a crime, failing to record a “reportable event” can be one if your local jurisdiction adopts model OECD language. The audience at STEP ASIA was encouraged to fight these laws with their local bar associations.

The goal of the OECD is likely to “name and shame” individuals, as MDRs have no legal effect. In this business, reputation is everything and individuals named in the MDRs will have no due process with these accusations in databases, and may not even be aware of their inclusion. They will have no rights of the accused typically seen in free societies.

Does this mean that individuals named could be denied access to border crossings while traveling? It’s possible.

The governments’ thirst for tax enforcement information is broadly dismissing individual privacy rights and legitimate safety issues. Here’s the reality – tax prosecution is often used as a form of political suppression and many governments participating in the CRS are little more than criminal gangs hiding behind the cloak of government.

Society generally agrees that increased tax compliance does not justify the means that are now being taken to get there.

There are specific social values which need to be protected and are more important than the theoretical elimination of all crime: Values such as the right to no self-incrimination, use of torture, rights of the accused, etc. This should also apply in the area of tax enforcement. If one argues that tax enforcement is somehow different than the other areas of law enforcement, that can be a slippery slope.

An Update on the PRC

Highlights of the presentation:

There is still no estate duty in the People’s Republic of China (PRC), despite annual rumors of such. The estate duty laws of 125,000 USD exemption level, then 55% drafted in 2004 have never been implemented.

Wills and estate plans are being used with increased frequency in Asia and the PRC, usually adopted by the first group, those with international experience, and Asians concerned about the fate of their family businesses, the second adoption group. This trend should continue with the aging population and large sums of 1st generational and regional wealth being transferred.

An update on blockchain from 2017 STEP ASIA in Singapore: During this panel, attendees were reminded that bitcoin was created in 2008 as a peer-to-peer electronic cash system, not a tool for speculation. However, there is still great potential in blockchain technology.

The blockchain now is similar to where the internet was in 1994 – most people did not have an email address in 1994, and we are now very early in blockchain adoption. However, the proof of concept stage was passed long ago.

Certain governments are financing the development of this field, eyeing it as a long-term alternative to using the U.S. dollar, and its usefulness is increasing.

Legal issues related to possession vs. action in regards to property laws need to be sorted, and the question needs to be asked: what is “custody” of an asset in a digital context?

Fundamental activities of banking institutions, including the payment of dividends, coupon payments, and corporate actions can all be recorded on a peer-to-peer system allowing huge savings at the expense of banks.

Tuesday Afternoon Presentations

Cyber Security with Richard Stagg and Robin Youill

Security has four elements:

  1. People
  2. Procedures
  3. Technology
  4. Physical Security

All four areas must be tested in routine circumstances, and in times of emergency/crisis.

People tend to be over-dependent on technology solutions and overlook the #1 risk: the quality of the people surrounding them. Many security firms use out-sourced labor, allowing the risk of “an inside job” to grow exponentially.

For digital communications, a VPN is essential, hacking into public wi-fi is too easy.

A Fresh UK Tax Update

This is not your mother’s sleepy HMRC any longer. The commission is looking very closely at domicile issues and challenging them like never before. The risk of becoming a “deemed domicile” and falling into the UK tax net is increasing if not correctly structured. Even evidence of prior non-dom approval is being requested. You need to have kept your favorable ruling letter from the ’80s or ’90s, because it’s you’re responsibility to produce it, not the HMRC’s.

The good news is that several trust strategies still work for tax-minimization of non-UK assets. A few ideas include “Will Trusts” which are similar to dynasty trusts, these do not pay the 10-year periodic charges and are a great way to minimize taxes. Several types of trusts can limit gains vs. incomes. Properties have special considerations, and you must be careful that if using loans, the loan itself is not deemed a UK asset. You also need to be sure to do this type of planning before you consider returning to the UK.

Policial Risk Planning

The focus of this session was on the value of using Investment Protection Treaties. These treaties between countries usually provide an arbitration right if an overseas investment is negatively and unfairly impacted by government action, local regulators, tax authorities, or the court system. This is becoming more of a factor in today’s geopolitical environment.

Over 300 of 700 filed cases since 1989 have found relief. The use of a holding company or trust in a favorable country generally changes the character of the investment to benefit from the treaties. China and Germany have the most treaties, and those in the U.S. and EU tend to be more narrow. Financing these arbitration claims is an additional option.

How OffShore and On-Shore Courts Look at Reserved Power Trusts

Much of the early discussion in this session was on the Pugachev case, which could take up a day of presentations on its own. However, reviews of claims of illusory trusts, sham trusts, and fraudulent transactions were also detailed.

It was clear to the presenters that on-shore courts view trusts with too many reserved powers, and with a high degree of skepticism. Alternatively, offshore courts are not very sympathetic to the views of on-shore courts. On-shore courts take a family court approach to trusts, a naturally skeptical and sometimes even hostile view to the trust structures.

It should be noted that the only permissible claim against a trust in Nevada is that of fraudulent conveyance. Sham and alter ego claims are forbidden by statute. This is not the case for many offshore reserved power trusts.

Wednesday Presentations

Wednesday included a very detailed presentation on the new American tax code and new planning opportunities for American taxpayers, and non-American taxpayers. Non-U.S. citizen strategies were largely not impacted by recent trust law changes.

Property Ownership in the U.S.

The details of property ownership in the U.S. were shared with a few slides and scenarios. U.S. property is an attractive asset for PRC citizens. Avoiding the estate tax of 40% above 60,000 USD is not difficult if the appropriate structuring options are put in place.

For U.S. persons, the use of an intentionally defective grantor trust (IDGT) is highly recommended to take advantage of the relatively high estate and gift tax exemptions. If leveraged properly, assets which are still exposed to the estate tax regime can be used and taxes paid from these assets. Many regard this structure strategy as superior to the GRAT which lacks the ability to use the GST exemption.

If you would like to discuss or review any of these presentations or strategies with Alliance Trust, contact us to set up an appointment.

Interview of Supreme Highness Prince Michael of Liechtenstein

The thoughtful and reflective interview of Supreme Highness Prince Michael of Liechtenstein reflected on 900 years and 36 generations of rule, and the more modern family ownership of Liechtenstein Global Trust (LGT Bank) the largest family-owned financial institution in Europe.

He discussed religious wars, expropriations, as recent as 1939, and managing family dynamics from generation to generation in a manner that families of all sizes of wealth could learn from.

The Wrap Up

The bon voyage BBQ held at the Hyatt pool was well-attended, and even a little rain did not dampen the spirits of the STEP Asia attendees.

If you’re interested in next year’s conference, mark your calendars for November 3rd-5th in Singapore.

For more information about establishing your trust in the U.S. and the state of Nevada, we’re here to answer your questions.

U.S. Supreme Court Looking at Two Cases Relating to State Taxation of Trusts

Minnesota and North Carolina appeal to the Supreme Court in Trust Taxation Cases

The United States Supreme Court will review two petitions for a writ of certiorari from the states of North Carolina and Minnesota. Both states lost cases in their respective State Supreme Courts where the state laws were deemed in violation of the United States Constitution under Due Process Clause. Both states have appealed to the U.S. Supreme court for review.

A Breakdown of the Original Cases

Case 1: North Carolina

The Case: North Carolina Department of Revenue, Petitioner v. The Kimberly Rice Kaestner 1992 Family Trust Current North Carolina Practice: North Carolina taxes trusts based on beneficiary residency. The Original Conclusion: “The North Carolina Supreme Court concluded that a trust and its beneficiaries are legally separate – in other words, that beneficiaries are outsiders to a trust. On that basis, that majority (of the NC Supreme Court) expressly disregarded the trust beneficiaries’ in-state residency and other contacts with North Carolina. That analysis led the majority to conclude that the trust at issue lacked a constitutionally sufficient connection with the state.”

Click here to view the case filings.

Case 2: Minnesota

The Case: Cynthia Bauerly, Commissioner, Minnesota Department of Revenue, Petitioner v. William Fielding, Trustee of the Reid and Ann MacDonald Irrevocable GST Trust for Maria V. Macdonald, et al. Current Minnesota Practice: Minnesota taxes trusts based on the residency of the grantor when the trust becomes irrevocable. The Original Conclusion: “The grantor’s connections to Minnesota are not relevant to the relationship between the trust’s income that Minnesota seeks to tax and the protection and benefits Minnesota provided to the trusts’ activities that generated that income. The relevant connections are Minnesota’s connection to the trustee, not the connection to the grantor who established the trust years earlier. A trust is its own legal entity, with a legal existence that is separate from the grantor or the beneficiary. Nor did the court find the grantor’s decision to use a Minnesota law firm to draft the trust documents to be relevant. Thus, the grantor Reid MacDonald is not the taxpayer, the trusts are.”

Click here to view the case filings.

What Are the States Asking For?

Both states believe they have the right to tax the trusts under due process clause, given legal abstractions of trusts. The Minnesota Supreme Court concluded that the trust is separate from the Grantor, but the connections between Grantor and the state of Minnesota were not sufficient to tax the trust. Similarly, the North Carolina Supreme Court ruled that a beneficiary and a trust are legally separate and the connection between the beneficiary and the state of North Carolina are not enough to tax the trust.

The question presented by the State of Minnesota: Does the Due Process Clause prohibit states from imposing income taxes on statutory “resident trusts” which have significant additional contacts with the state, but are administered by an out-of-state trustee? The question presented by the State of North Carolina: Does the Due Process Clause prohibit states from taxing trusts based on trust beneficiaries’ in-state residency?

A Constitutional Reminder: The Due Process Clause of the Fourteenth Amendment provides that [n]o state shall…deprive any person of life, liberty, or property, without due process of law.” U.S. Const. Amend. XIV § 1.)

What Lower Courts Had to Say in Regard to Their Decisions

From Minnesota Writ: “This Court has not spoken on the issue in decades, and its precedents point in opposite directions. As a consequence, state appellate courts are deeply divided on the correct answer. Some state appellate courts have held that a state may impose an income tax on a trust even when the trustee resides out-of-state, so long as the grantor resided in-state when the trust became irrevocable. Other courts have required, on top of grantor residence, that the trust have some additional contacts with the state during the tax year. One other state high court has held that a state may tax a trust as a resident if a beneficiary of the trust resided in the state during the tax year.”

From North Carolina Writ:

“This case asks whether the Due Process Clause prohibits states from taxing trusts based on trust beneficiaries’ in-state residency—a question on which nine state courts have split. Because of the Tax Injunction Act, this federal constitutional question is usually litigated in state courts. State courts are divided in their answers to this question, however, because they lack modern guidance from this Court.”

“With that decision, North Carolina joined the ranks of eight other states that have reached conflicting decisions on the question presented here. Five states have concluded that the Due Process Clause forbids states from taxing trusts based on trust beneficiaries’ in-state residency. Four states have concluded the opposite.”

The United States Supreme Court has not ruled on trust taxation since 1947 (Greenough v. Newport 331 U.S. 486 (1947)) and states say that since state courts are split regarding their rulings of trust taxation that a review by the Supreme Court is needed.

Where Concluding States Land

Four state courts have concluded that the Due Process Clause allows states to tax trusts based on trust beneficiaries’ in-state residency:

  • California in McCulloch v. Franchise Tax Board, 390 P.2d 412 (Cal. 1964)
  • Missouri in Westfall v. Director of Revenue, 812 S.W.2d 513 (Mo. 1991)
  • Connecticut in Chase Manhattan Bank v. Gavin, 733 A.2d 782, 802 (Conn. 1999)
  • Illinois in Linn v. Department of Revenue, 2 N.E. 3d 1203, 1209 (Ill. App. Ct. 2013) – but note that Linn ultimately held that the state could not tax a trust merely because the trust’s settlor had been an Illinois resident.

 

Five states ruled against taxation of trusts:

  • New York in Mercantile-Safe Deposit & Trust Co. v. Murphy, 203 N.E.2d 490, 491 (N.Y. 1964)
  • New Jersey in Potter v. Taxation Division Director, 5 N.J. Tax 399, 405 (N.J. Tax Ct. 1983)
  • Michigan in Blue v. Department of Treasury, 462 N.W.2d 762, 764 (Mich. Ct. App. 1990)
  • North Carolina in this current case: North Carolina Department of Revenue, Petitioner v. The Kimberly Rice Kaestner 1992 Family Trust
  • Minnesota in this current case: Cynthia Bauerly, Commissioner, Minnesota Department of Revenue, Petitioner v. William Fielding, Trustee of the Reid and Ann MacDonald Irrevocable GST Trust for Maria V. Macdonald, et al. Note that Minnesota rejected both the residency of Grantor and Beneficiary.)

What is the Impact of the Recent Wayfair Case?

In South Dakota v. Wayfair the United States Supreme Court ruled that states may impose sales tax even if the seller does not have a physical presence in the state.

This case could have an impact on future Supreme Court decisions regarding taxation. Although South Dakota’s decision is not an exact template for other states, it could influence how they craft their laws.

Timing

In the North Carolina case, the writ was filed on October 9th, 2018. The taxpayer filed their brief in opposition on November 30th.

The Minnesota case writ was filed on November 15th and docketed on November 21st. The taxpayers have until December 21st to file their response.

Will the Supreme Court Take Both Cases, or One?

Some Potential Outcomes: Ruling for the states – A ruling for the states would have a significant negative impact on out-of-state trust planning and could potentially send grantors to offshore jurisdictions.

Ruling for taxpayers – This will have a significant impact on the 22 states that still impose taxes on trusts and could potentially be a clear law-of-the-land in which all states would need to amend their tax code to comply.

Both cases declined – This is an implicit win for the taxpayers, and would lead to further haggling at the state level, both in courts as well as legislation.

Because Minnesota’s Fielding case includes both grantor and beneficiary issues, the Supreme Court hearing this case would set more comprehensive precedents regarding the taxation of trusts. With the North Carolina Kaestner case, the only issue at hand is the beneficiary’s residence.

There are still a lot of questions and unknowns about the impact of the court’s decisions and a lot of speculation. Either way, there are sure to be some interesting changes ahead.

Who said trust laws had to be boring?

Understanding Nevada Asset Protection Trusts

Why Nevada’s Asset Protection Trust Laws Keep Your Wealth Safer Than Any Other State

The state of Nevada has dominated the asset protection space and positioned itself as the most beneficial situs to establish an asset protection trust.

Precedent-setting cases and favorable trust laws have launched Nevada to the forefront of the estate planning industry and allowing trustees and estate planners flexibility, privacy, and the power to protect wealth and assets more securely than any other state.

The Benefits of Nevada Law

Nevada’s trust advantages continue to grow and have edged out other states with similar trust provisions. Here are some of the ways that Nevada takes asset protection measures further.

Nevada’s advantages include:

Nevada carries no state or corporate income tax.

Federal taxes take a significant chunk out of trusts and returns made on assets so establishing a trust in a state with no income tax can help preserve a large portion of wealth.

Nevada carries no state or corporate income tax, protecting your wealth from additional taxes and allowing it more unhindered growth.

Nevada carries a 24-month statute of limitations or “seasoning period.”

Every state carries a different statute of limitations ranging from 1.5 years to 5 years. While Nevada carries a two-year statute, the language in the Nevada code reinforces that trusts are actually still protected during the two-year seasoning period.

Zero exception creditors, including divorcing spouses.

In the recent case of Klabacka vs. Nelson, Nevada sets a new precedent that its asset protection laws are the most robust in the nation.

In a similar case in Delaware, the courts sided with the divorcing spouse, weakening the state’s asset protection laws.

The grantor is able to name an independent financial advisor to manage trust funds.

Anyone can take advantage of Nevada’s favorable trust laws as grantors can name a Nevada resident or a Nevada trust company as trustee or co-trustee, this includes international families and businesses as well as domestic families.

Nevada Asset Protection Trusts are irrevocable but flexible.

In Nevada, the trust settlor is allowed to make decisions regarding powers related to managing the Nevada Domestic Asset Protection Trust (NDAPT). Though the term irrevocable sounds final, in Nevada, there is actually a great deal of flexibility in these trusts.

What is a Nevada Asset Protection Trust?

Simply put, an asset protection trust limits creditor access to the value of the beneficiary’s interest in the trust. The asset protection trust protects the value of the assets and legally protects them from lawsuits and other claims.

Nevada Asset Protection Trusts have proven their strength, holding up in court most recently in the case of Klabacka v Nelson, 133 Nev. Adv. Op. (May25, 2017): Nevada DAPT Protects Against Spousal/Child Support Claims. In this case, a divorcing spouse sought access to her ex-husbands self-settled spendthrift trust and the courts sided with the trust. All alimony, child support, and other claims on the trust had to be taken from liquid assets outside of the trust.

The decision in the Klabacka case reaffirmed Nevada’s asset protection strength as other states are scrambling to keep up. While other states may defer to Nevada’s ruling in the Klabacka case, that is far from a guarantee.

Nevada Residency is not required.

If your trust is established in Nevada you may live anywhere in the world and take advantage of Nevada’s many trust benefits. Nevada also fully protects personal privacy.

Alliance Trust Company of Nevada helps people take full advantage of Nevada’s trust laws and may serve as independent trustee if the grantor is out of state. We’re available to answer any questions regarding Nevada Asset Protection.

Using NING Trusts to Significantly Reduce State Income Tax Liabilities

Why Wealthy Families are Choosing to Shift Their Wealth to the Tax Favored State of Nevada

The state of Nevada is considered a tax-favored environment, allowing maximum tax protection over trusts and estates. That’s just one of the reasons why more and more people are choosing Nevada as to establish their trusts.

The “NING” trust or Nevada Incomplete-gift Non-Grantor trust reduces state income tax liabilities and simultaneously provides asset protection benefits.

For people with substantial income, assets or large capital gains who could generate significant Federal and state income tax shifting a trust from its current state to a state with more favorable tax laws, such as Nevada, could create significant income tax savings.

While moving to Nevada would allow someone to take advantage of these benefits, relocating family is often not an option. However, by establishing a NING and transferring assets from the existing trust into the NING, the trust will only face Federal capital gains taxes.

Non-Grantor vs. Grantor Trusts

Trusts are set up as either grantor or non-grantor, and it’s important to understand the difference.

Grantor trusts expose the creator of the trust to the taxes incurred by the trust. Non-grantor trusts are set up as their own entities incurring all taxes at the trust level instead of passing them on to the owner of the trust.

Things get murky because every state has its own taxation rules and definitions about which trusts should be considered a resident.

For example, to take advantage of a NING or Nevada’s favorable tax laws in general, a non-grantor trust with a Nevada trustee should be established. By establishing a non-grantor trust in Nevada and appointing a Nevada trustee you can be sure that you’ll minimize or completely eliminate taxes from your state of residence.

A New Aggressive Strategy for Substantial Gains

If a substantial gain is on the horizon, wealthy families can take advantage of ING trusts to adopt a more aggressive tax strategy. ING’s help reduce state income tax at the trust level by establishing it one or more years before a large gain becomes available.

One word of caution, there are specific steps you should follow to ensure that your strategy is not viewed as tax evasion, it’s always best to employ professional guidance to understand how to establish your ING ethically.

Structuring a NING for Maximum Benefit

Since the purpose of establishing a NING trust is to avoid additional taxing, it’s important to properly structure the trust to avoid gift tax. Proper structuring also ensures that the trust really is taxed in Nevada instead of the settlor’s home state.

Remember that NING stands for Nevada Incomplete-Gift Non-Grantor Trust, so when assets are transferred to the trust, it must be in the form of an “incomplete gift.”

Transferring assets as an “incomplete gift” allows the owner of the trust to include your investments in your estate without needing to file a Form 709 gift tax return.

NING Trusts vs. DING Trusts

The DING Trust did come before the NING trust, so one may wonder which is the better situs for a trust, Nevada or Delaware?

While both states allow settlors to appoint a grantor for their trust and take advantage of favorable tax laws, several Delaware rulings have allowed divorcing spouses and creditors to gain access to an asset protection trust. Nevada has never allowed such access in rulings and therefore has more iron clad protection than any other state.

How the Other States Feel About ING Trusts

It’s no surprise that other states aren’t happy about non-grantor trusts and their tax-avoidance benefits, some have even gone as far as banning such trusts.

While both Delaware and Nevada have successfully deflected attempts by other states to tax grantors, that likely won’t stop states from attempting to gain access whenever they can.

However, several statutes in the state of Nevada prove that the state values and protects trusts and estates which are established there and is the safest bet when choosing where to create an ING trust.

To learn more about establishing a NING, please contact Alliance Trust Company.

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