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What is a Self-Settled Trust? Asset Protection & Tax Savings.

August 4, 2014

Filed under: Asset Protection Planning,DING,Income Tax Planning,NING — Tags: , , , — Neel Shah @ 3:22 am

Right now, gift and generation skipping transfer tax exemptions, set at $5.34 million each, have caused a resurgence in interest regarding self-settled trust. As of now, only fifteen states allow for these types of trusts: Alaska, Delaware, Hawaii, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia and Wyoming. Several of these states, including Delaware and Nevada, tend to be popular locations for DING/NING trust establishment when the trust creator lives in a high state income-tax and capital gains tax environment.

What is a Self-Settled Trust?  Asset Protection & Tax Savings.

Photo Credit: hostingkartinok.com

Under a self-settled trust, grantors may even be a beneficiary of an irrevocable trust that is established for their own family. As long as no assets are transferred fraudulently, no exception creditors, and no pre-existing arrangement between the trustee and grantor, a trust grantor can establish himself or herself as a beneficiary.

These trusts are most often used for domestic asset protection in four separate ways: a self-settled trust, spendthrift protection, modern discretionary trust protection, and the establishment of a limited liability company to shield and own trust property. In their most common form, self-settled trusts are used as an alternative to off-shore trusts. To learn more about trust creation and management that maximizes protection, email us at info@lawesq.net or contact us via phone at 732-521-9455.

Saving Taxes: Is a DING Trust Right For Me?

July 15, 2014

Filed under: Income Tax Planning,Taxes — Tags: , , — Neel Shah @ 4:25 pm

Like a lot of business planning strategies, it’s best that you meet with a legal professional to discuss the best tactics for your situation. One of those strategies might be a DING (Delaware Incomplete Non-Grantor Trust), a tool that is growing in popularity for managing and minimizing both federal and state income taxes. Especially for those individuals living in states with high income taxes, a DING trust is a powerful strategy for making the most of your assets without being so negatively impacted by taxes.

Saving Taxes Is a DING Trust Right For Me
(Photo Credit: america.schickhappens.net)

In a DING trust, a person can transfer assets (including some business interests) that produce a high level of income into a trust without triggering a state or federal gift tax. The state income taxes are actually transferred from the resident’s home state to a state where trust income is not taxed. There are several jurisdictions that have been used in the past for this purpose include Nevada, Delaware, and Alaska.

This type of trust is a great choice for someone who has significant portfolios that generate income or those individuals that live in a high tax state concerned about the tax implications of their assets. This form of asset protection gives peace of mind and confidence to those who use it. As of right now, New Jersey does not tax trust income if there are no resident trustees. Therefore, assets held in a DING trust may be exempted from high state income taxes (8.975% in New Jersey). For special tax planning, contact us for more details at info@lawesq.net or over the phone at 732-521-9455 to get started.

The Business Owner’s Parachute: Get Your Exit Plan Ready

April 22, 2014

Filed under: Business Law,Business Planning,Business Succession Planning — Tags: , , , , , , , , , , , , , , , , — Neel Shah @ 12:42 pm

While “now” is always the time you should start getting your exit plan ready for your business, there are some guidelines about specific year marks that you should use to think about what will happen next. Here is the best advice for exit plans.

theretiredaffiliate.com
(Photo Credit: theretiredaffiliate.com)

Starting ten years in advance is the best way to maximize opportunities. This is because at this marker, you can start really considering whether the business is intended as a family legacy. If a family member will be taking over the business, the ten year period is a great planning point for incorporating those family members into training and education. Ultimately, this will make the transition period much smoother. Saving taxes is another primary concern at this stage. If a business owner has recently converted the company from C Corp to S Corp filing status, you should wait a minimum of ten years before selling the company.

Five years out is a good place to review because you are a little closer to the finish line here. Cash flow, tax deduction, and tax leverage should all be explored with your planning specialist at this time. Changes regarding cash flow can allow for a strategy in which cash flow to the owner is a focus rather than company growth.

Finally, even one year out provides planning opportunities. For example, we have implemented strategies which could save the Seller the entire [9% – 13%] tax some states collect upon the sale of a business. If the company will be sold, the owner should identify a business broker or investment banker to actually put the business on the market. This gives enough time for a due diligence review, drafting the sales agreement, and delays related to regulatory issues. No matter what stage you’re at, you need to put some planning tactics in place for your exit plan. Contact us today at 732-521-9455 or email info@lawesq.net to get started with your personalized plan.

Loop Hole or Opportunity? High State Tax Residents Use Nevada and Delaware Trusts to Avoid Tax.

April 11, 2014

Filed under: Taxes — Tags: , , , , , , , , , , — Neel Shah @ 4:07 pm

Today’s high net worth individuals are deeply sensitive to the risks they face with state income taxes. Since state income taxes can be such a burden for a wealthy person, more individuals are transferring billions of dollars’ worth of assets to trusts in states without tax, like Alaska, Nevada, and Delaware.

While these moves are currently quite legal, they are getting attention from officials in places like New York. New York officials have recognized a $150 million a year loss from avoiding taxes using out of state trusts. Wise wealth planners are clued in to these kinds of strategies, recognizing that many clients are concerned about the negative hit their assets will take when subject to such taxes. Wealth planners report that more clients are asking for assistance in protecting their money wherever possible, and out of state trusts are proving to be a vibrant market with many opportunities.

Loop Hole or Opportunity High State Tax Residents Use Nevada and Delaware Trusts to Avoid Tax
(Photo Credit: localsmile.com)

Although these transfers are happening at the individual level, they seem to mirror corporation behavior, too. Companies like Google have moved across national borders in order to cut down on the high taxes they are forced to pay if they stay in the U.S. Likewise, some people who want to sell their companies move shares out of home states and into out-of-state trusts to protect gains from state income taxes.

Estate attorneys that are in the know look at every aspect of a client’s portfolio to find the best ways to promote growth and protect from risk. Any client with a substantial portfolio might want to consider this strategy to cut down on the high state taxes that would otherwise be paid. Clients have been successful and satisfied with moving assets across the spectrum from several hundred thousand all the way up to hundreds of millions.

Nevada and Delaware have been engaged in a decades-long battle to get business from wealthy Americans through trusts. Part of the strategy for getting this business is by writing laws that make it simpler to transfer property across several generations and reduce the risk that assets will be attacked by creditors. As a result, Nevada has no state income tax and Delaware doesn’t place a tax on any out-of-state beneficiaries.

One of the most popular strategies is to use a Non-Grantor Trust, known as NING (Nevada Non-Grantor Trust) and DING (Delaware Non-Grantor Trust). Wealthy individuals who live in high-tax states can make the best of friendly policies in other states without the fear of violating any state or federal laws. In fact, a growing number of individuals are moving the assets just far enough outside their control so that they aren’t responsible for state income tax while also protecting them from being hit with a 40 percent gift tax. Most of these trusts are private, so there’s no clear data yet about just how many people are taking advantage of these incredible trust opportunities, but planners and attorneys are both reporting higher numbers of clients getting on board.