ASSET PROTECTION TRUST:
Most states prohibit so-called "self-settled" asset protection trusts for the grantor’s own benefit. However, there is a growing trend among the states to allow these types of trusts, and several states have recently changed their laws to permit them including Alaska, Delaware, Nevada, Rhode Island, South Dakota, and Utah and a few others. The Domestic Asset Protection Trust (DAPT) in WealthDocs is created to comply with Delaware law.
With a domestic self-settled asset protection trust, a grantor irrevocably transfers assets to the trust and names himself or herself as a beneficiary to receive distributions within the discretion of an independent trustee. The grantor may retain certain rights, including the right to remove and replace the trustee as long as the replacement trustee is also independent and not a related or subordinate party as defined in the Internal Revenue Code.
By retaining a limited power to appoint the trust assets to specific family members at your death, the transfer is incomplete for gift tax purposes. As a result, the grantor is not required to file a federal gift tax return. If the trust is designed as incomplete for gift tax purposes, the trust remains part of the grantor’s gross estate but the assets should remain free from creditors’ claims. If designed as a completed gift for tax purposes, others will be the primary beneficiaries but the grantor might still be entitled to receive discretionary needs benefits as necessary to maintain the grantor’s lifestyle.
The self-settled asset protection trust laws vary from state to state and, therefore, there may be advantages to selecting one state's laws over another in a client’s particular circumstances.
Note that self-settled asset protection trusts are only effective for future creditors, as the fraudulent transfer laws of all states prohibit transfers to avoid existing creditors. Also, the trust must be in existence for at least 10 years to protect against creditors in bankruptcy.
BERT:
BERT - The Wonder Trust is a trademark name for an Irrevocable Trust created for the primary benefit of the Grantor's spouse and designed to qualify for annual exclusion gifts. The ancronym BERT stands for Build Up Equity Retirement Trust. The trademark for the name is held by Cecil Smith, Memphis, TN and Carol Gonnella, Jackson, WY.
During the life of the Grantor's spouse, discretionary distributions can be made to the spouse and other initial beneficiaries. The trust is not designed to qualify for the unlimited marital gift tax deduction and is also designed not to be included in the Grantor's spouse's estate. Crummey rights will be used to qualify transfers to the trust for the federal annual gift tax exclusion.
INTENTIONALLY DEFECTIVE GRANTOR TRUST:
The primary objective of an Intentionally Defective Grantor Trust (IDGT) is to create a trust that is effective for estate tax purposes but defective for income tax purposes.
This is accomplished by including certain provisions that will result in the Grantor being considered the owner of the trust for income tax purposes pursuant to Section 671 of the Internal Revenue Code. These provisions will not cause the trust assets to be included in the Grantor's estate at the time of his or her death.
An IDGT should be considered a sophisticated tax planning tool involving complex and changing gift tax, estate tax, generation skipping transfer tax and income tax issues.
GIFTING TRUST:
The primary purpose of a gifting trust is to hold and invest property for the benefit of family members as a means of transferring family wealth. Usually the beneficiaries will be family members in lower generations such as the grantors' children or grandchildren, nieces and nephews.
The design of the gifting trust will depend upon your clients' specific goals and wishes.
If you desire to use the annual gift tax exclusion to shelter gifts to the trust for gift tax, you will need to include Crummey powers. If you desire to create a grantor trust for income tax purposes, understand that there is concern among some commentators that this may be inconsistent with granting Crummey powers to beneficiaries.
Crummey trusts do not automatically qualify for the annual exclusion for generation-skipping transfer tax (GSTT) purposes, under Section 2642(c). The annual exclusion applies for GSTT purposes only to a transfer to a trust if the trust has only one beneficiary (must be a skip person) for life or the term of the trust, whichever first occurs and the trust must be includable in the gross estate of the beneficiary at his or her death.
INHERITOR's TRUST:
The primary purpose of an Inheritor's Trust™ is to hold property that will be received by the beneficiary as an inheritance. Usually the Grantor(s) will be the parent(s) of the beneficiary. The name Inheritor's Trust is a trademark of Steven J. Oshins, Richard A. Oshins, and Noel C. Ice.
For a complete discussion of the concept you should review the materials Steven J. Oshins presented during the Plenary Session of WealthCounsel Annual Education Event in Scottsdale, AZ on May 19, 2005 or read the articles available at www.oshins.com.
An Inheritor's Trust should be considered a sophisticated tax planning tool involving complex and changing gift tax, estate tax, generation skipping transfer tax and income tax issues. No practitioner should attempt to draft and implement an Inheritor's Trust without a sound understanding of the tax issues surrounding this device.
Charitable Lead Trust
A charitable lead trust pays an annuity or unitrust interest to a designated charity for specified term of years (the "charitable term") with the remainder ultimately distributed to non-charitable beneficiaries. There is no specified limit for the charitable term. The donor receives a charitable deduction for the value of the interest received by the charity. The value of the non-charitable beneficiary's remainder interest is a taxable gift by the grantor.
Charitable Lead Annuity Trust
A charitable lead annuity trust is a charitable lead trust paying a fixed percentage of the initial value of the trust assets to the charity for the charitable term.
Charitable Lead Unitrust
A charitable lead unitrust is a charitable lead trust paying a percentage of the value of its assets, determined annually, to a charity for the charitable term.
Charitable Remainder Trust
In a charitable remainder trust, the donor transfers assets to an annuity trust or unitrust. The trust pays the donor or another beneficiary a certain amount each year for a specified period. In an annuity trust, the payment is a specified dollar amount. In a unitrust, the payment is a percentage of the value of the trust, as valued each year. The term of the trust is limited to 20 years or the life of the designated recipients. At the end of the term of the trust, the remaining trust assets must be distributed to a charitable organization. Contributions to the charitable remainder trust can qualify for a charitable deduction. This charitable contribution deduction is limited to the present value of the charitable organization's remainder interest. Revenue Procedures 89-20, 89-21, 90-30, and 90-31 provide sample trust forms that the Service will recognize as meeting charitable remainder trust requirements.