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the broadcast is now starting all attendees are in listen-only mode good morning or afternoon everyone depending on what for the country are in and welcome to our webinar the secrets of the ultra-wealthy this is Deb admin and I am a trust officer and vice president with peak trust company and we are sponsoring this wonderful webinar today a picture company is formally Alaska Trust Company we were founded 20 years ago back in 2016 we obtained a Nevada Charter and that's when we renamed ourselves to Peak trust company to encompass both the Alaska and Nevada jurisdictions which we can both offer before we began I've got to some housekeeping items for everyone that is attending we are recording this presentation and we will be sending out a copy of the recording and a copy of the slide deck within 24 hours after this webinar we will be answering any questions at the end but pill please feel free to submit any of your questions using the poll on the right hand of your screen and our plan is to get to as many of the questions as we possibly can and those we can't we will address afterwards it is my picture now to present to you the the presenters and is my honor to have Jeffrey board an attorney and Julian MOBAs Ian hope I pronounced that correctly present for us Jeffrey is the Managing Partner of one of our Orange County's premier comprehensive estate planning and asset protection firms Jeffrey M Vernon Law Group LLC with more than 30 years of experience in designing and implementing comprehensive estate planning and asset protection structures the law firm serves affluent families and successful business owners in solving their most complex and almost vexing estate tax income tax and asset protection goals and objectives and Julian MOBAs Ian MBA who is the creator of intelligent leverage using life insurance and is recognized throughout the insurance industry as an innovator of new a date ideas that have placed over 40 billion dollars of life insurance for business and estate planning purposes with a Nantz premium that exceeds four billion dollars not million but billion so with that I'm going to turn it over to you Jeff well thank you and good morning everybody I guess it's afternoon in some parts of the country that we have are and listeners for those of you who may not know much about me or my law firm we are a boutique trusts estates and asset protection law firm with offices our primary offices in Newport Beach California and last year we opened an office up in the Redwood City area in Silicon Valley our clients span most of the United States and we co-counsel cases or other law firms around the country and as Barbara mentioned I'm thrilled to be joined by my good friend and the Godfather of the life insurance industry Julian Lovaza and Julian say good morning to the group good morning everyone the fashion capital Julian's company Succession capital Alliance Inc has offices in Newport Beach and Manhattan New York and as Barbara mentioned Julian is the inventor of premium finance life insurance a platform that was created and transformed how large life-insurance policies are sold in the United States and around the world using a concept he calls intelligent leverage hopefully during Julian's remarks he'll have time to tell us the story about how he came up with this concept is it is a remarkable story and and share with you his ideas and how he uses intelligent leverage in the estate planning process one of the secrets of the ultra rich we'll talk about today is how they buy and how they pay for their life insurance and Julian who generally just speaks at industry conferences I was able to snag him out of his office a few blocks from here and come over and talk to you today about premium finance life insurance and of course we'll take questions at the end of the program so let's get started secrets of the ultra wealthy you've all heard the term disruptive technology and it means if we can get the slide to work here there we go a term that explains how certain things go out of vogue and we replaced with another innovation or technology now we're all familiar with these companies for those younger listeners who may not know the story IBM used to hone the operating system for the home computer and some pinheaded IBM didn't think people would want to have a business machine in their homes and wound up selling the operating system to Bill Gates and Microsoft and of course we know how that story ended now iBM is a very successful company but you can imagine how much more successful it has been had they retained the operating system Kodak one of the great photography companies of our generations no longer exists why because they didn't see the digital camera coming and they're gone social media has had a profound impact on our society we have a person in the White House today with who about social media probably wouldn't have won the election when I was a kid the Sears and Roebuck was the powerhouse retailer and today you know they're shuttering stores so we don't get out ahead of this of this disruptive technology and embrace it and use it our own practices you know we could go the way of many of these companies I love to show this slide to my clients when they come in for our initial meeting Einstein's definition of insanity and then we all know it's doing the same thing over and over and expecting a different result you know often we sit down with clients who have been working with the same advisors for 20 25 30 years or more because that's the only person that's all make it a Ford of the time they started their companies or their businesses and they didn't have never upgraded as they rose up the socio-economic ladder so people want to change the results they're getting they need to change the people from which they get their advice and I think that's a very illustrative way to start a conversation with your clients now the first topic I want to talk about very briefly today is decanting decanting is fixing broken trusts what my friend Steve motions calls the Mulligan trust if you play golf and you want to take that shot over again it's called a mulligan well there are many very old trust that your wealthy clients have that were published ten twenty thirty years ago that have provisions in those trusts which are outdated and with the concept of decanting those trusts those irrevocable trusts can be changed and brought up to - you know to modern-day terms if the trust was set up fifteen or twenty years ago when the kids were just infants and now they're just about to graduate from college they're about to get their first distribution and their parents are tearing their hair out of their head because I don't want those kids to get those that doe because of their perhaps are irresponsible they're not quite at the stage where they should beginning large distributions and the lawyer tells them that the trust is replicable it can't be changed now many states have provisions where procedures where you can amended a revocable trust if you go into court and you get consent by all the beneficiaries but that's a process that I'll be very difficult in most cases and not necessarily practical you may have beneficiaries parents of which or Puma are worried about lawsuits bankruptcies tax liens divorcing spouses so decanting a trust it's changing the tribal trust can be a very important undertaking for your wealthy ultra wealthy clients so what does the camp in your trust well it's very similar to decanting a bottle of wine into a carafe as you can see from the illustration we're going to move the trust from the jurisdiction that does not have decanting laws to here in California we don't have a decanting statute so if the trust allows for it we're going to move that trust to the state of Nevada for example and we're going to create the new trust that has all the updated provisions that our clients want to have in their trust that was not in their trust when it was written 20 or 30 years ago and then we're going to take those assets and we're going to put them into the new trust from the old trust and the old Trust goes away that's what the concept of decanting means now why would somebody wanted to can well you may want to extend the term of the trust in Nevada they have up to three hundred and sixty five years for a trust term if you wanted to go that long this isn't the second bullet points important changing the hem standard to a discretionary trust many trust lawyers who don't practice on the asset protection area aren't aware that when you use the standard of hems health education maintenance and support that standard for distributions will allow a creditor of a beneficiary to grab hold of those distributions or force that trustee to make those distributions to the beneficiary at which time the creditor can grab them on the other hand if the benefit the trustees powers are basically in the sole and absolute discretion of the trustee the creditor is not allowed or cannot force the trustee to make those discretionary distributions so it creates a much better asset protection situation for that trust and so if you have trusts that are revocable and you have the hem standard and you want to protect the beneficiaries from themselves that you might want to think about amending the trust or decanting the trust to a new trust it has the discretionary distribution scheme many older trusts have drafting errors confusing terms perhaps you want to change the governing law of that trust from let's say California which is a state that I've written extensively about which is probably the one of the worst states to set up a trust to another state perhaps like Alaska Nevada Wyoming some of the other states to the come on board that have much better law for the kind of work that we do you might want decant the trust to change the powers of appointment perhaps beneficiaries have special needs and the trust doesn't qualify for the governmental benefits and then you might have S corporation stock which the older trust doesn't have the appropriate Co SST provisions or the other provisions that would allow S corporation stock to be followed by this revocable trust okay so Julian life insurance most people hate the subject most people turn away from it but you know life insurance and the estate planning role that you and I work in is a very important asset class and until you up with your concept there was really only one way to pay for life insurance and then when he came up with the intelligent leverage of the premium financing concept that really kicked over the table in a very old and stodgy industry so tell us about premium financing and maybe you can tell us by start by telling us how you came up with the idea well since we have a short time I'll give you the short story the short version in 1995 one of our clients when my office used to be in Beverly Hills California one of our clients is anywhere premiums they were purchasing a large policy on mob and annual premiums were around $800,000 a year however the client had issues of writing the check of $800,000 and that's when actually it was a client of Mines idea that has suggested to finance the premiums I was fortunate enough to partner up with a fortune 20 company in 1995 that they believed in the concept and we came up with the concept of long for life and that's how this whole thing started and changed the landscape in the life industry so we call it intelligent leverage gentlemen so what are the intelligent leverage maybe a few ladies out there children and ladies I apologize I apologize so it's an alternative funding method used to purchase life insurance that offers the high net worth individuals the power of choice most of their super affluent clients they don't want to write half a million dollar 1 million dollar premium cheques however were we offering a choice that's when the client feel much much more comfortable and of course has the flexibility the benefit of intelligent leverage ladies and gentlemen is this everything we do it is custom-designed and flexible it significantly increases the generator returns and death and the cash value we also create a new asset class with the trust that is liquid and not subject to state acts everything we do is no prepayment penalty and that's a key feature all fees on these loans considerably discussed the cash flow necessary to purchase the large amounts of life insurance so with the applications of intelligent leverage are obviously estate planning and asset protection while we've seen in the last several years most applications that we receive from around the country for clients we're seeing them coming in Nevada applications that trust established in the better so most of these policies are owned by a Nevada trust so it is used obviously for estate planning as a protection and so forth so how does intelligent leverage works so again we're providing the climate choice between paying cash or leveraging or financing that so the benefit of intelligence leverage this if we have a meal for example sixty-five that's purchasing a ten million dollar policy over life expectancy the client or the trust would pay three point five million dollars and life expectancy they generate the returns on the death benefit it's nine point six percent however if we use leverage the client will be spending million 188 based on the current rate and the client will save that all the trustees will save two point three million dollars in actual cash premiums so the IRS its 19.7% and we discounted the clients cash flow by 66 percent another way another model which is today this is a very popular model that we've seen we've seen clients between ages 21 and 55 who munger some other policies to create a new asset class which is creating obviously tax-free distributions at retirement so for client if we look at the left side ladies and gentlemen if a quiet takes two hundred sixty eight thousand dollars per year and puts it away under six point seven percent with this money manager at age of sixty-five you'd be able to take million one hundred six thousand dollars distribution for nine years that's cumulative total income paid of nine point seven million dollars versus if you take the same cumulative amount of five million one hundred six thousand at the same rate keep in mind there is zero income tax on it you'll be able to take the same amount of distributions for twenty years that's twenty two million dollars that's a huge difference ladies and gentlemen between paying cash versus leveraging one more example a second multi policy this is after an estate planning case the client purchased this thirty million dollar policy to the Nevada trust their premiums at life expectancy was eight million dollars the IRS it's eight point 1 million dollar eight point one percent as nice expectancy over twenty eight years versus they used leverage and life expectancy the IRR is fourteen point four percent the client saved five point four million dollars and that's a sixty eight percent cash flow we save for decline that you cannot ignore the savings between paying cash versus leveraging it so just you know when when people hear about premium financing it's oftentimes the first time they've ever heard of it why isn't the industry really embracing this and a much more ubiquitous fashion than than it currently is at after all the years ago that you came up with this what's what's the what's the problem why don't why don't more people know about this well doing doing leveraging a policy obviously it is a high maintenance for the Dodgers a lot of advisors my opinion they take shortcut they don't and I want to propose it to a client however with an affluent client and what I consider affluent 25 plus million dollar net worth would good income a good liquidity if you give the client the choice number one obviously the client first of all you're gonna be saving a large huge amount on games taxes you've got you have the flexibility either to pay interest or discount Dupree this kind of premiums or you can even accrued interest down the road imagine no probably letters when you do an insurance trust when you finance the premiums because you're not making gifts to the trust every year to make the grab it is extremely it's extremely it'
extremely flexible however most of the major carriers then they call us with the gold standard in the life industry because we are only firm as far as I know that we have renewed through the financial crisis you know eight or nine over two billion dollar of premium portfolio out well that's great we're going to come back to you just a second at when I get through the heist a trust to talk about a case study that you and I would have done so let me turn your attention now to a very popular trust that we're using out here on the west coast and around the country and some of you in the East Coast may have seen something like this called a slap but this is a trust that I think it provides a great deal more benefit taking back to the summer of 2010 do a little trip down memory lane and if you remember during that time Congress and Obama were battling over whether the Bush tax cuts were going to be extended and through the summer into the fall and good part of the winter as far as new estate planning goes we didn't do very much businesses we weren't sure what to tell our clients they'd be able to do we didn't have any estate tax during 2010 that's the year that George Steinbrenner in infamously passed away and it cost the government 600 million dollars in the state taxes and he was smart going in and he was smart going out so December 17th President Obama signed into law a new bill that unified the estate and gift tax rules and bumped up the exemption amount gift an estate taxes emption to 5 million dollars and this was another you for it then for us all the state plans and they've been doing this a long time and the largest exemption amount we had ever seen was 1 million dollars and imagine all the planning you can do but when I got to thinking about how would my clients use this I mean we were still in the Great Recession if you remember and the idea of giving away 5 million dollars to the kids and grandkids and traditional gifting programs you have to give the assets away you have no way to get them back it was going to be a very tough sell and I thought we'd have a very difficult time convincing our clients to do this and of course we only had two years within which to make the gifts and the gift and we'll almost in a sunset so in those days it was it was a crazy time for us but as most things happen I was doing some accidentally discovered a an approach doing some research for a client that sort of completely changed my thinking I read a private letter rule in 2009 4400 - which basically allow the client to set up an asset protection trust in the NASA's protection trust jurisdiction and have the set lower being a discretionary beneficiary and in those jurisdictions as you can imagine being a discretionary beneficiary instead of having a general power of appointment which would have not allowed for a taxable gift you have a limited power appointment which does and so the IRS rule that the transfers to the trust we're completed gifts for gift tax purposes and then by extension were at earliest taxable estate for estate tax purposes I thought to myself Mike if I can set up a trust and allowed my clients to get those assets back if they later needed or wanted them they got donors remorse or if they just needed the assets my clients did have their cake and eat it too when I wrote that term down on my yellow pad it spelled hiset so I just started decided to call this trust the hiset trust so in January of 2011 I started having my meetings of my client they liked the idea they liked the concept and the fact that they can pull the string and get those assets back liberated them to do a lot of the gift planning and back in those days we had very depressed assets so those assets went into these trusts and we did an awful lot of them and where this differs from the slat is if you do a slab and the beneficiary dies the set lower husband the set lowest beneficiary dies the settle or husband or settler wife doesn't have any way to reclaim the assets and the trust so it does have it does have limitations so we started offering the high set trust as a solution and people started pumping money and assets into the trust and so here's a little videotape that we put together to help our clients understand the hiset trust if we get this to work Barbara or that maybe you can well what if you could do that when planning your estate what if you can take advantage of the generous lifetime gift tax exemption laws by placing your property to a type of dynasty trust so the asset value goes free of death taxes for multiple generations yet if you later walk all or part of the gifts back is yours meet the hiset trust with conventional gift planning once the gift is made it cannot be reclaimed yet if the Great Recession of 2008 taught us anything is that you can never be certain you have enough money let's say you have an estate with property you expect you significantly appreciate would like to take advantage of your 5 million-dollar gift tax exemption but if your financial circumstances change how to access the gifted assets here's how the hiset trust works you establish the trust one of the qualifying states like Nevada or Alaska for your kids and grantees and use all or part of your five million dollar gift exemption to fund the trust to avoid any gift taxes a gift the five million dollars that earns an average well appreciate you over 30 million dollars after 30 years wanting to take advantage of the five million dollar gift tax exemption your tax adviser recommends you make a gift of your five million dollars to a dynasty trust you like the idea but if later you want some of the gifted assets back you need the flexibility to reclaim part of the gift how do you access assets already transferred to the hiset trust under the terms of the trust you may request your trustee for some of the assets you previously gave to the hiset trust say 1 million dollars of the total of 5 million dollars even to the hiset trust and the assets from the other side is up trust and distributed through your benefit how much will you save in death taxes it depends on how large the gift grows in value and then estate tax rate the current estate tax rate is 40 percent if you're a 5 million dollar gift grows to over 30 million your death tax savings is more than 12 million dollars if the essence grow at 10 percent your tax savings will be almost 40 million dollars worried about lawsuits how about your child or spouse laying claim to the assets of the trust what about bankruptcy or civil lawsuit with the hiset trust you are protected because your children's and grandchildren's creditors are not allowed to touch the Trust's essence what if you're again not a problem the hiset trust may be used to freeze your state you can sell some or all of your remaining assets to the trust for an IOU and you pay no capital gains tax because the trust is tax as a grantor trust while your IOU is a modest interest rate required by government regulations the assets you folks the hiset trust appreciate the trust no death taxes for up to 365 years skeptical take a look at IRS private letter ruling 2 0 0 9 4 4 0 0 2 related favorable rulings while the PLR may only be relied upon by the taxpayer requested you can see how the IRS treats the claiming transaction the bottom line you have a choice use a conventional irrevocable dynasty trust and lose the power to reclaim the gifted assets or upgrade your trust to the high scripts and the tremendous flexibility asset protection trust vehicle that's why we need the Heiser trust you really can't have your cake and eat it down okay so you know obviously why use the four point five point four nine million dollar gift exclusion because it'll save your client a whole ton of estate taxes I can just get this tip here you go over a period of 30 years those assets grow significantly and if they grow outside the estate in the hiset trust but your clients have the ability to get them back it just creates a much easier conversation to have about doing the transfers yeah it's a multi-function trust flexibility of the gift asset protection for the beneficiaries Billy's doing an intentional sale to essentially defective grantor trust my friend Steve ocean's wrote about the the hybrid DAPT which is essentially the hiset trust is the most important tool in the asset protection industry period it has no equal and while those Steve's not prone to hyperbole I would agree with them in that case there's some of the legal authority that we basically high state trust on you could read that in your materials I will go through it when I started doing the heist and Trust in 2011 we were starting to transfer a lot of income producing assets of our clients into these trusts so I drove a couple of blocks Ameri went to see my friend Julie and I said Julie we have this income producing assets in these trusts and we use these the cash flow to create really gross up those gifts and to create a better performance for our clients and he got together with his team and he came up with a way to do that so here's a case study that Julie will quickly take you through and we'll show you how he was able to achieve that so the concept go ahead yep so the constant was instead the client was putting the five million dollars into the trust so what why not create two asset classes rather than one so we the client already has the five million dollar that just recommended to put her trust and then meanwhile we had the trust also borrow another five million dollars to purchase the second or Die policy of around 17 million dollars so if the client just made the gift the five million dollar at 4% return the tail over life expectancy the client told the total asset in the trust to be around almost fourteen million nine hundred ninety three thousand dollars however when they use the leverage they still have ten million eight hundred eighty six thousand dollars in cash inside the plan plus seventeen million dollars of actual death benefit at life expectancy so the total be twenty eight million seven hundred and thirty thousand dollars versus if you just do nothing and does make the five million dollar gift Jeff at four percent net after-tax a large expectancy you will have almost fifteen million versus twenty eight million and this was of course as you recall it was very custom tailored based on the client's balance sheet and so forth it's just the client had already decided the part of the assets anyway this just made perfect sense for them to do this we can do a home for again program Deborah and Barbara just on this alone so let me change courses now and talk with you about what I think is the most important part of the presentation this morning which is asset protection planning I was a young lawyer practicing about six or seven years when I was hired by a small group of doctors here in my area to do some planning and they were looking to retire in five years and the longest tailed policy they can find to protect them against malpractice suits was going to expire five years post-retirement the problem was that these were baby doctors and when they delivered their last baby and hung up their stethoscope they are on the hook for that child's liability until that kid reached the age of eighteen punched plus the venn statute of limitations from malpractice claims so they were going to be in the early 80s before they were out of the woods legally and they just found that to be important and I was tasked with coming up with a way that they can protect themselves in case of a catastrophic lawsuit and as I took a deep dive into the subject matter you know what as the state and Trust lawyers we were taught to do planning postmortem when it passed as much wealth as we can to of the next generation and keep the administrative functions as smooth as possible we never thought about the fact that a person might consume during their lifetime to lose all or most of their wealth so when I finished this this planning for this client by today's standard it was a pretty basic plan it got me thinking about what was my more important function in the estate and gift tax planning well from my clients making their kids or grandkids richer or building these firewall protections from my clients and protecting them against a future potential financial catastrophe legal catastrophe and so I retold my practice and changed my approach to my estate planning and we would sit down and have an adult conversation about lawsuits and planning before we got started talking about a state and gift tax planning because I can design the most elegant estate plan but the client gets sued loses all of their wealth my client isn't worth the paper it's written on so asset protection planning became part of our lexicon this is not going back 30 years and I dare say while the industry has you know has grown and and there are some excellent planners is still a long way from from capturing the majority of the clients and most the state and Trust firms don't recommend don't even get into this discussion so your clients can be successful investors they can be you can have successful tax planning but they can all get wiped out it won't matter if they get sued so it's really not about what you do it's about what you own and I can prove this to you get battered get injured have property damaged by a homeless person and call up well the good the king out here is Larry H Parker I don't know how it is the rest of the country and try to get a contingency plea lawyer to take your case and if that defendant doesn't have the assets you're not going to find a lawyer no matter how good the lawsuit is so it's not going to matter it is a practitioner if you if you wind up getting sued and you lose everything that you've accumulated over your life time and for those of you that work in the estate and gift tax area your if your laws are like they are here in California we're not out of the woods until the testator we do the will for passes away and then one year from his death the statute of limitations expires so we could be well into our 80s and 90s before our liability seasons that's why asset protection planning is on our radar screen if your clients though know they have exposure there's a loss of exposure test I've put here on the screen have them take this test if you would like to get this test on in word and put it on your letterhead I'm happy to send it to you if they score on the rather high end of the answer key they're probably grant candidates for asset protection planning now there's a big debate right now in academia as to whether or not asset protection works I spoke with the 2014 Notre Dame Institute and just before I came on the Jeff Pannell brilliant act in the mission and writer and lecturer and professor spent an hour talking about asset protection planning maybe not being so effective but nobody ever defines the term work in my world in our practice the term work means that by putting these structures into place the client has a much better chance of achieving an early and more favorable settlement and the table it's obviously important to manage your clients expectations about what they expect asset protection to do for them but here on the left side of the screen you can see half a dozen or so cases where we've used ask the protection planning to achieve which by you know my metric is a pretty decent result fifty eight million dollar lawsuits have been settled for seven million dollars a thirty four million dollar malpractice suit settled for less than a million dollars a one interesting case obviously a quick second on is I had a personal guarantee and a bunch of heavy equipment we had a new session he couldn't pay for the creditor got a judgment against them but we had set up a series of limited liability companies for him and as part of his estate plan and so the creditor had a charging order against the LLC interest a charging order is the enforcement remedy for partnerships and LLC's and basically had a lien against the partnership interest but no ability to go into the partnership or the LLC and to reach the assets we sent the K ones every year to the creditor because under Revenue Ruling 77 137 the the absolutely partner is the partner that picks up all items the deduction
credit loss and expense and so for the first couple years there wasn't much activity in the partnership or the LLC but then they sold a very valuable piece of real estate and there was a 2.3 million dollar gain that kind of tribute into that charging order we sent the Charter the k1 to the PI of that year to the creditor excuse me and quickly began a phone call on the Kings level for $250,000 because they didn't want to have to go through this and every year going forward so we've had some very good results and I think if you begin to implement asset protection planning with your clients and situations arise in their world they're going to be able to use these tools to be able to effect a quick and favorable settlement when thinking about doing asset protection planning there's two approaches one is domestic asset protection trusts and of course the other is the offshore asset protection trust maintain this by Barry angle from Denver Colorado when you think about which direction to go I mean we've now seen 17 states have adapted an adopted self settled trust legislation once the international community began to embrace this because I think many of the states saw their business going overseas but the problem with domestic asset protection planning is we get this document called the US Constitution which sort of gets in the way and we've got concepts that that trump state law Full Faith and Credit Clause the Supremacy Clause the contract clause these concepts federalism trumps the state laws and so until we see some supreme US Supreme Court case law coming out I'm just a little bit dubious about how effective domestic asset protection planning is going to be now my good friend Steve oceans will tell you that there's never been a case barb def can the advancing slide thank you there's never been a case that's that's been decided against a domestic asset protection trust or punctured a domestic asset protection trust thank you but and that's new and I think that speaks to the fact that when creditors are faced with masks the protection cases and there's no fraudulent transfer involved they'll typically settle versus litigate with the problem out the prospect of recovery but there's a new relatively new statute the 2005 bankruptcy Act has a 10-year set-aside rule for transfers to self settled trusts there we go or other similar devices and there's a couple of cases now that had been decided under the statute and Ray Mortensen a case out of Alaska in which an Alaska resident set up with Alaska asset protection trust and yet the the bankruptcies trustees still went after him for transference claiming that the fact that he set up an asset protection trust was evidence bending of the intent to hinder delay or defraud a creditor that case was on appeal to the Ninth Circuit and then the parties settled and then you had anyway uber uber where this isn't the bad facts making bad law case this is a case that of a Washington resident and set up asset protection trust and Alaska had no nexus with the state and it was just bad timing and the result was the way it should have happened but it's just always difficult when you're trying to decide what's the most protective way for your client to go investigate protection like Nevada or Alaska or offshore if you want more predictable results the solution is to establish your trust in the jurisdiction that that doesn't have any comedy with the US and one of the most important things that we do in our world is forum shop finding the best jurisdiction to set up trust when it comes to the hiset trust we find that Alaska and Nevada are great jurisdictions for this when it comes to ask protection planning having done it as long as I haven't have been able to achieve the results that we have we find that going offshore gives our clients a great deal of protection but for those people who just don't come going offshore setting up a domestic asset protection planning a trust rather in either Alaska or Nevada is a good alternative so you can see the the advantage of the foreign trust versus domestic trust increased ability of settler to retain the benefit and control for entrusts less likely to be an automatic target in litigation because of the challenges of litigating trust overseas and you can go on or read the rest of these so it really you know it's a question of good better or best I like the the foreign structures for asset protection planning because almost in violent but for most clients doing a domestic asset protection trust who don't find themselves getting into a bankruptcy over the next 10 years maybe in all an effective alternative okay I've got a little specialty for those of you that reside here in California this doesn't apply around the country we're the only state in the country that has this but this is the best asset protection plan that those of us who practice in California have never heard of what is it it's called a private retirement plan California is not known for its exemption laws to be sure but we do have this one little gem in our statute California Civil Code of procedure several 401 1 5 and this statute says that if you establish a private retirement plan that assets that you contribute to the plan are fully exempt from creditors even in bankruptcy because California is opted out of the federal bankruptcy exemption regime and then more importantly when you take your retirement distributions out of your plan then those distributions are similarly exempt and the plan does not have to be ERISA qualified so for those of you who want to protections of the of the private retirement plan but don't want to have to include other employees don't want the funding limitations as you have with ERISA qualified plans you can set up basically a defined benefit plan but just not a risk to qualify and you get the ability to do the discrimination that most owners would prefer to have how is it established the employer steps up to plan for the employee it's a an employee it's taxed as an employee grantor trust so all the income tax benefits or all the income tax incidents flow to the employee but once the plan is established and you've established how much of a retirement benefit the employee wants to receive then the employee contributes his or her assets to the plan to make sure that those that there's sufficient asked us to be able to provide that benefit once those assets go into the plan there are example creditors even in case you have to file for bankruptcy and when those planning distributions come out they're protected as well for those of you that have any interest in this you can go on my website www.marykay.co.uk/awilliam visit for the client for their budget and what they're trying to accomplish I publish a client alert usually about one to twice a month and if you'd like to sign up for the complimentary client alerts I'm happy to just send me your contact information and you'll be getting that sent to you from peak trust just to send it in to us and make sure that we we get you on the list I've written a book called estate planning for women only I do lectures on luxury cruise ships a few times a year and I do a program called estate planning for women only no men allowed we don't let the men in the room it's just the gals and me and we have a very frank discussion about all the challenges and frustrations that the wives go through when they try to put estate plans together particularly when you're dealing with his mind in our situation and I cover in my book basic estate planning and some of the more advanced things including the premium financing topic that Julien talked about earlier if you'd like to get a copy of the book it's on Amazon and we donate our profits on the book to the Wounded Warrior Foundation so it's our feedback form and at this time Barbara will take some questions all right that sounds good and this is this is actually Deb Jeff and we do have a question that came from a mr. William shredder and the question is are you concerned about the potential end of the estate tax in the USA how should clients adjust their documents well that's a great question and that's the penultimate question but I think if if you if you take a look at the Trump's tax plan when he was running as a candidate the concept was to repeal the estate tax but replace it with the canadian-style capital gains tax so I still feel that if you want to avoid the triggering of the capital gains tax so this capital gains tax will have a similar you know ten million dollar exemption for couples the capital gains tax rate will be probably be half of what the estate tax rate is so it won't be as crony and except happen a large estate but if the idea is to delay the recognition of that game then get those assets into these dynasty trusts now before there's a liquid in the event or before death arises so that doesn't trigger the recognition event so I still think dynasty dynastic trust planning is important whether we have an estate tax or whether we have a canadian-style of capital gains tax okay well thank you Jeff the next question is regarding private financing so I'm assuming this will be for for you Julian are all the more favorable numbers guaranteed or projections what type and also what type of life insurance are you using that's two part all the policies that it's been leveraged since 1995 they have to be permanent policies so they don't expire so either gotta be traditional whole life policies or Universal Life or indexed universal life policies so there are no life policies obviously you have guarantees and the index universal life you have principle protection you know with the floor of zero and a cap of ten or eleven it depends which carrier the advisors would like to use so that's on the product ID on the long side of course some clients they want what they call it customer rate some clients they want the fixed rate so that's all up to the advisors okay thank you Julian hopefully that that answered all those questions and we do also Paul Rimac if you're there I'm going to unmute you you have raised your hand that you have a question Paul Rimac good morning Paul okay we must had an issue connecting sorry about that Jeff and there was another comment from Steve Welsh after your you mentioned your comments regarding the potential repeal they state tax Steve says Trump was a negotiator he will likely trade it away and he's comment as I'm betting that will have a higher estate tax when the bill passes if it does any comments on that you know this has been this has been like an alternative universe the last six months so I'm I wouldn't be surprised at anything I was surprised the budget today didn't have the money for the wall and it didn't have they funded certain things they weren't supposed to fund but you know running a government a lot harder than running a business I would imagine and they have smart people up there they'll figure it out but I I do know this and it'll create a lot of work for us in our industry and I'm really I'm all too happy for that well said and and Paul riemeck Jeff did he he mailed his question here Paul asks assuming the estate tax is replaced by the Canadian approach for California taxpayers will there be tax savings since California texts texas gains as my glasses on oh i well you know this is where a great firm like like pink trust company comes into play because you know when people start looking at the kinds of tax rates and you know california right now is the thirteen point three but i think it's going to be going up the california can't afford to offer all these services to its citizens and its non-citizens and be able to pay its bills because we're losing a lot of the income producers to other states so i think when when we look at tax planning for California residents instead of leaving this beautiful state which it is with this beautiful climate just move your assets out of California and have the gains attributed to in states like Alaska or Nevada where you don't have an income tax or a capital gains tax and I think you can achieve some you know some some great some significant benefits by doing those analytics and maybe that's something we can talk about is another another program yeah thank you Jeff I and I always as always be trust we appreciate that little plug you gave us there William shredder has a couple more fault questions for you Julian what is the collateral for the insurance loan any personal guarantees no usually we can waive it that's easy and the rule of Palmer with us if a client is gonna borrow an example five million dollars the rule of thumb we require collateral somewhere between eight and twelve percent that's the required collateral for how long the undeclared it's usually extemporary and usually it depends on the product that the advisors chooses to use the glider usually would release the clatter after five six years having said that the Claro can stay with the clients money managers never we just file a security agreement so only time that Clara is at risk if the client is in default and usually we don't have any defaults with the top of the clients that we have and then he's got kind of a couple more follow ups kind of to that so I think you might have answered this but he asks is the Claro for the loan just the policy value or does the trust have to act as clatter or is there any personal guarantee that may be needed Julian the trust usually is the borrower and the owner of the policy so the trust usually do have asset and again the trust is pledging the collateral that temporary collateral that we were obviously we need and again I'm not sure if you asked in the question about the percentage of the Clara that were required usually it's between eight and twelve percent of the poll cumulative loan and one of the reasons and so well is because the policies have tremendous cash values and why would that beat you in well the we like one of the key when you're designing large amount of life insurance one of the keys that we've learned in the early 2000 then in 2008 and 9 when we had the financial crisis we want to make sure there's enough safety net for the client so the client ever changes his mind and he wants to exit we want to make sure the client doesn't have to ride a 5 or 10 million dollar check so the cash values the way we structured in our the safety net sort of clients aren't you taking your commission and spreading the metal for a longer period of time so there's more cash value in the policies and so you kind of have skin in the game along with your client if you don't service the policy and take care of them they're gonna drop you well that's unusual in the industry it is and again you are if you are you are correct we we are correct you want to make sure the client again has the right design that's gonna work for him number one number two again my biggest concern with other advisors that they come to us you want to make sure that we build enough safety nets for his clients again if something goes wrong with their financials so we don't want to climb riding a 510 million dollar check if they ever decide to exit the plan the cash values would cover 95% of the note after three four years and I can tell you from personal experience we started implementing the hiset trust with the finance Life Insurance back in 2011 and the performance of these policies even through the ups and downs of the economy have been almost spot-on to what you projected in the illustrations when you when you sold the client the policy so that's that's reassurance they haven't had to put up any more capital no okay what else all right just one more kind of follow-up for you Julian as a kind of a third part is or maybe this is for you Jeff what is the income what is the income tax rate on the income produced in the trust in that case well the trust is a grantor trust so it's going to be the income tax rate of the state of the grantor but one of the nice things about the insurance policy is because life insurance policies don't pay tax on their capital gains interest dividends or royalty income it's a great way to create acts efficiencies and then when the client gets 15 20 years in the program the policies have built out built up substantial cash value the trustee can borr
w the cash value out of the policy and make loans to the taxpayer and those loans create a liability from the taxpayer back to the trust and when you approve the interest and you have this loan when the taxpayer dies that creates a deductible expense or liability in the estate under Section 20 53 and Uncle Sam wise up subsidizing you know forty percent if that's the estate tax rate then if we have an estate tax of that liability so there are some wonderful planning opportunities or again we can spend another we can spend an hour just doing going through case studies showing how once you get the acid out of the estate in the hiset trustor or other dynastic type trusts how combining that with a life insurance policy really does gross up the amount of wealth that's being created with modest risk and creating tremendous amounts of tax-free buildup cash value which is why somebody other people are dumping so much money into these insurance policies using bank money actually not their money right that's the and people don't do premium financing because they can't afford to borrow the money or they can't afford to pay the premiums they do it because it's just a better more efficient way of leaving their assets in their portfolio or in their business and using the bank's money to create this secondary asset can thank you we've got about five more minutes and about four more questions so I'm we're gonna do the best we can here here's a question for you Jeff is how do you move trust jurisdiction from California to Nevada for example in order to the can't guarantee California won't attempt to void that move from California to Nevada and a second question second part of that is what if the trust explicitly states that California law shall apply well good questions if the trust allows for a change of situs and most you know most well drafted trusts have this provision it's very easy to move it the trustee has the authority moved from California to Nevada and if it's if it's a grantor trust California will still collect its taxes it's a complex trust or a non-grantor trusts then California will not collect the tax unless the distributions come out to a California beneficiary so that's manageable but that's how you get the trust into with the canting state whether it's Nevada or some other state that has adopted this law the second question was one more time debt the second question was hold on oh right nope no no no no and that what came from Mike clang hey Mike do you man do you mind typing that back up my apologies it just it's not on my screen now we'll come back to that and I'll jump ahead to another question this is from JJ Moline do you have any experience with the hiset and real property gifts to leverage prop 58 Parent Child exclusion specifically have the assessor's office offices raised any issues good question so whatever you do a transfer of for new real estate into a revocable trust you have to make sure that you don't to run afoul of the reassess the rules unless you want to there may be times when you want a reassessment and so if you do it carefully you have the parent-child exclusion you've got the exclusion of transferring an asset into an LLC we typically do them we first transform it into an LLC or a limited partnership before they go into the trust so they can get a discount and so you just have to be careful that you're not running to follow the rules and stay within those those guidelines but it can be done okay perfect another question this is I think this might be for you Julian again and we'll try to take it's kind of a two-part question and then after this anybody that's got questions we will follow up with you and we will have these answers but we will send them via email the last question we can take is can a c-corp purchase life insurance for 100% owner and then can they deduct the cost and name any beneficiary they want or does the beneficiary need to be the C Corp however the cost is not deductible that's after club the corporate CPA or CFO to decide that but in my book know the cost it is not deductible that's correct okay and then the second part to that is why is it better to register a living trust in a state other than California and can a resident of California qualify right so if you go to my website I've written three articles in the last couple of months one for Kipling here which I think how you and I got connected dead and two here in California about why California is probably the worst place to have a trust we have laws in our state that allow if you set up a support trust for your kids we have laws in our state that allow your kids predators to invade that trust and in disregard the spendthrift clause which is something that's so you know endemic so inherent in the ability of one to set up a support trust and keep ones creditors away ones children's creditors away from the trust so we have a philosophy here in California that you know they don't want people doing things that's going to affect society in a negative way and I think if you want to set up a trust and you don't want your kids creditors to reach it because you know our children to make mistakes I think you should be allowed to do that that's the way trust law has been since for a thousand years and yet California is trying to rewrite that old concept so selecting a situs outside of California is certainly something that one can do and it's done all the time and you just follow the rules and you should have a you should have no problem in effecting a better result that's why we like Nevada so much and I had one more thing Deb if you don't mind no of course course not I'm mentioning one thing we get a lot of calls from all over the country from attorneys CPAs financial advisors that they have quads I think those large premiums on existing policies in cash and they ask us can we help them and the answer is the answer is yes we can they don't have to cancel their policies however we restructure their premiums by doing that obviously that the clients would have some huge advantages so I just want to mention that because I know a lot of the attendees they do have clients at paying large premiums possibly you know I have enough crummy powers or the gift tax is that so forth and Thank You Julian so I'm gonna invoke my right to to change my mind so if my husband you're listening out there you know this is not unusual and I'm gonna grab that we just have three last questions so are you okay with that Jeff and and doing if we just okay thank you Mike cling dig get back to us and the last part of his question Jeff what are the trust explicitly states that California law shall apply that is it doesn't allow for a change of dirt the change of situs yes the trust is a replicable and it doesn't allow for change the scientists you'll have to go into the superior court and get a court to issue a modification of the trust allowing it to be moved and the trust that the judge is probably going to want to be very clear and what the test and what the trust ORS intent was and if it is if it's not clear that the trustor would have allowed this or the settler would have lab is you probably won't be able to move the trust so possibly having the trust sell assets to entrust in Nevada or installment note or some other technique like that to move the assets into the right environment might be one of the solutions to a trust that doesn't allow for it to be moved and Mike if you have if you want to talk about that give me a call in my office and we can brainstorm a little bit and then Stephen Welch kind of has a follow-up to that he just makes a comment that says you could also create a new trust in Nevada and perform a statutory merger or a private merger if the trust agreement permits that's right and again if it's a well written trust it's probably those that language is in there and authorizes the trustee to do it okay and what sorry one last question from Stan Kimball this is for you Jeff if I understand correctly Jeff is using more foreign asset protection trusts if so what jurisdictions I yes I'm using more foreign asset protection trusts for pure asset protection play okay I set up my I set trusts in the state of Nevada I'd like the Cook Islands because I've been setting up trust there for over 20 years and it's and they're it's it's performed as advertised we're now sending them up in the Bahamas because last December they changed their fraudulent transfer laws and really tighten that up and then we like Belize because police has a very interesting trust statute it doesn't add much Raja land transfer statute so you literally can set up a trust in Belize and not even have to deal with fraudulent transfer as it relates down there not necessarily here in the state so those are my three go-to jurisdictions Belize the Bahamas and mostly the Cook Islands perfect and thank you and I think we've we've only gone four minutes over I think we did pretty good so with that I want to thank Jeff and Julian so much for your time today we've gotten all kinds of thank you emails out here that we'll share with you and thank you for all the attendees for hopping on today we greatly appreciate your attendance and want you to know that we will be following up with all of you with an Mel with a copy of this slide deck and also a copy of the recording so thank you everybody and have a wonderful rest of the day
