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Opening a Trust for a Family Friend

Hey guys. I am an inhouse transactional attorney and recentl rising1l03/26/18
Sounds like a perfect time to learn. Trusts can be simple qdllc03/27/18
This sounds like a trust looking for a need. Why, other tha jeffm03/27/18
There is a good series of books called "x" line by line. Whe thirdtierlaw03/27/18
Few issues. While some "management fees" sound nice, do you jd4hire03/27/18
Saying you have a trust is like saying you have a business - dingbat03/27/18
These transfers to trust will be considered gifts. Gift tran 2tierreality03/27/18
"these transfers to trust will be considered gifts" - not ne dingbat03/27/18
You hair splitting is most appreciated. Trying to keep it si 2tierreality03/27/18
sorry, didn't mean to split hairs. but yeah, there's so muc dingbat03/27/18
Almost a GEICO commercial: When you're a lawyer, you spli wutwutwut03/27/18
The way I see it, trustee and counsel are two different hats onehell03/27/18
being both the attorney who drafted the trust and the truste dingbat03/27/18
Pssh just tell him to open a 529 account lolwutjobs03/27/18
I deal with international T&E on a daily basis. It’s an ex alphadog1503/27/18
The client here is not a foreign non-dom. He is a permanent garfieldfan03/27/18
here's the important part: The estate tax exclusion is $6 dingbat03/28/18
A trust to pay for the kids' school? Has anyone asked wheth jeffm03/27/18
Lots of assumptions here - and another showing of why to lea dingbat03/28/18
Counselor, I think we're seeing an instance of the law of do jackofspeed03/28/18
I don't do T&E but it sounds like a lot of trouble over some isthisit03/28/18
If there is no tax planning considerations- basically his an alphadog1503/29/18
There is a lot wrong with this post. Tax planning isn’t o dingbat03/29/18
Yup, you’ll get step up in basis because it’s a revocabl alphadog1503/29/18
An irrevocable trust will get creditor protection (so long a dingbat03/31/18

rising1l (Mar 26, 2018 - 11:30 pm)

Hey guys. I am an inhouse transactional attorney and recently a wealthy family friend asked my dad whether I can be the trustee under the trust and to create a trust for him. The trust's purpose is for his kids to go to school. He would pay me a reasonable management fee.

I don't know anything about trusts other than my bar exam.

One issue that I have is that the individual is a greencard holder in the US but currently lives overseas.

I also don't know enough about the tax implications. Does anyone have a good source that I can do some research and a good template? The only items in the trust would be cash deposits on a yearly basis. I was planning on opening a vanguard account and putting all the money in there.

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qdllc (Mar 27, 2018 - 8:27 am)

Sounds like a perfect time to learn.

Trusts can be simple or complex. I was looking into one, and it was a confusing 60+ page ordeal to read through, but it was drafted to cover everything possible and shelter assets held by the trust.

Any respectable law library should have treatises on the topic with sample trust documents. If all the guy wants to do is set aside money for a kid’s education (and I suppose by doing so divests himself of the wealth for other purposes) that’s a lot less complicated than an all-inclusive trust document.

Check local law schools to see what they have in the stacks.

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jeffm (Mar 27, 2018 - 8:42 am)

This sounds like a trust looking for a need. Why, other than the client's suggestion, are you considering a trust?

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thirdtierlaw (Mar 27, 2018 - 9:03 am)

There is a good series of books called "x" line by line. Where is "x" is the type of trust, software agreement, or whatever else. Where the essentially dissect the trust document line by line and explain why that provision is in there.

I do not do trust and estate work so I can't be much more help than that. But there are a ton of CLEs and practice manuals about them.

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jd4hire (Mar 27, 2018 - 9:44 am)

Few issues. While some "management fees" sound nice, do you have malpractice coverage if an oh $hit situation arises? Also, do the potential fees justify attempting to learn something you've never done before and have no mentor to offer guidance?

If they are such a good friend, you might want to refer them out as you might not be able to meet their needs. Further, dependent upon the stratosphere of wealth, this individual may need more than a trust for their children, but just don't know it yet.

On the flip side, Gary Vee loves a good side hustle, so why not.

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dingbat (Mar 27, 2018 - 1:46 pm)

Saying you have a trust is like saying you have a business - the variation is endless.

A trust could be a verbal agreement to watch your friend’s drink at a bar, or it could be a 300 page document with a list of duties and responsibilities covering every eventuality ever conceived.

If you’ve never drafted a trust, find someone more experienced to split the fee with you. If you’re going to be the trustee, don’t take a fee for drafting, that’s wading very far into possible ethics violation territory

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2tierreality (Mar 27, 2018 - 1:59 pm)

These transfers to trust will be considered gifts. Gift transfers can become very complex when dealing with non-U.S. Citizens and non-domicilliaries in regards to restrictions on transfers and related gift tax issues. Better to deal with an attorney that has experience with estate and wealth transfer planning for non-residents so the client is properly informed and advised.

FWIW, 80% of my practice is T and E, and I would refer this out, due to the non-Citizen gifting issues.

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dingbat (Mar 27, 2018 - 2:24 pm)

"these transfers to trust will be considered gifts" - not necessarily. It depends on how the trust is set up, and there are too many unasked questions to make that determination.

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2tierreality (Mar 27, 2018 - 5:52 pm)

You hair splitting is most appreciated. Trying to keep it simple for OP.

...sort of my point as to why competent counsel is needed.

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dingbat (Mar 27, 2018 - 5:56 pm)

sorry, didn't mean to split hairs. but yeah, there's so much possible and so many questions that haven't been asked.

As an aside, the non-citizenship issue is a notable complication, but for a big enough client, it's worth the effort to learn and not need to refer out the fee

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wutwutwut (Mar 27, 2018 - 6:02 pm)

Almost a GEICO commercial:

When you're a lawyer, you split hairs - It's What You Do!"

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onehell (Mar 27, 2018 - 6:05 pm)

The way I see it, trustee and counsel are two different hats. When asked to set up the trust, you are counsel and you need to be competent to handle the legal problem. When asked to serve as trustee going forward, you are a fiduciary charged with making sure the assets are invested responsibly and doling them out in accordance with the provisions of the trust. You don't even have to be a lawyer to serve purely as the trustee.

The two roles of counsel and trustee are not incompatible and are often combined, but the former is going to require more specialized knowledge than the latter IMHO. If it were me, I might agree to be trustee but to be legal counsel I'd be afraid of "not knowing what I don't know" so to speak. Better to just have you be the trustee and make sure the trust authorizes you to hire outside counsel with trust funds as-needed.

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dingbat (Mar 27, 2018 - 9:44 pm)

being both the attorney who drafted the trust and the trustee, while permissible, brings up conflict and self-dealing issues. It's very important to have an explicit waiver signed by the client, but better still to not occupy both roles - if anything goes wrong, you'll be in the hot seat.

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lolwutjobs (Mar 27, 2018 - 6:08 pm)

Pssh just tell him to open a 529 account

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alphadog15 (Mar 27, 2018 - 6:48 pm)

I deal with international T&E on a daily basis. It’s an extremely complex area of law, but perhaps the biggest issues with foreign clients are:

1. Foreign non-doms only have a $60k exemption before US estate tax kicks in, so the trust either needs to be the type the results in a completed gift, the trust corpus cannot consist of US situs assets subject to US estate tax or there’s enough life insurance on the settlor’s life to cover estate tax liability;
2. Just as important as the Settlor’s status is the status of the beneficiary- US or foreign? Will they eventually be US? Note that I’m not just talking US citizen but US person for income tax purposes. If any US beneficiary And the trust is the type that avoids US estate tax you better be sure you know your throwback tax rules (which applies to foreign non-grantor trusts)....
3. A completed gift of cash from a US account may result in US gift tax

I’m getting tired just writing this. There’s so many land mines, so watch out.

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garfieldfan (Mar 27, 2018 - 11:29 pm)

The client here is not a foreign non-dom. He is a permanent resident and thus subject to taxes on all worldwide income.

While most similarly situated people don't pay what they are supposed to (outside of counsels knowledge certainly), any trust set up and legal advice given needs to follow the letter of the law.

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dingbat (Mar 28, 2018 - 8:35 am)

here's the important part:

The estate tax exclusion is $60,000 and the annual gift tax exclusion is $15,000 (with no lifetime credits based on the estate tax exclusion) UNLESS there's an estate and gift tax treaty in place with the country of nationality which would modify those amounts.

Last time I checked, the U.S. has Estate and Gift Tax Treaties with the following 18 countries: Australia, Austria, Belgium, Canada (through the income tax treaty), Denmark, Germany, Finland, France, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Sweden, Switzerland, and the United Kingdom.

Questions that make a big difference:
- is the spouse a citizen, resident, or neither
- are the children citizens, residents, or neither
- where are the assets currently located? (basically, U.S. assets or non-U.S. assets)

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jeffm (Mar 27, 2018 - 8:12 pm)

A trust to pay for the kids' school? Has anyone asked whether it's just easier for the man to write a check for tuition? Maybe put the books on a credit card? Why does he need a trust? I see PITA written all over it - all for a simple task of sending the kids to school. Makes no sense unless there's more to the story.

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dingbat (Mar 28, 2018 - 10:53 am)

Lots of assumptions here - and another showing of why to leave matters to the professionals

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jackofspeed (Mar 28, 2018 - 10:55 am)

Counselor, I think we're seeing an instance of the law of double effect.

The rich guy has a real goal in mind, but he thinks he has to dress it up in the form of a trust and he wants the trust ostensibly for his kid's education.

OP's real dilemma is figuring out what the rich guy really wants to accomplish, and sell that service or refer it out to an experienced attorney.

Maybe, for example, Rich guy wants to later assign operating businesses as "Gifts" to his kid as a form of protection against local expropriation.

Maybe he's got a wife he's about to divorce and wants to make sure she can't get the money.

Regardless OP really needs to have a proper sit-down with the guy to know what he really wants.

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isthisit (Mar 28, 2018 - 11:41 pm)

I don't do T&E but it sounds like a lot of trouble over something that he could do with a checkbook.

Talk to him to see what his real goals are for this money.

I'd recommend teaming up with an experienced practioner and splitting the drafting fee. Or maybe forego the drafting fee (look at best practices in your locale for this). This way the client is paying the other practioner to teach you T&E. You then get to manage the trust and reap that fee. Sell it to your client as a way to avoid any future issues concerning conflicts/ethics. Promise to oversee the drafting to keep costs low.

Also "individual is a greencard holder in the US but currently lives overseas." make sure he doesn't accidentally give up his LPR status while he's overseas.

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alphadog15 (Mar 29, 2018 - 8:13 am)

If there is no tax planning considerations- basically his and his wife’s combined assets are less than approximately $12mm (approx $6mm of the old exemption rate that you should assume will return in 2026) and he plans to leave all to his wife and then kids, then tax planning should not be a concern except perhaps a credit shelter Trust in the event his state has its own estate tax and no portability to the spouse.

A simple revocable Trust should do the trick if he absolutely insists on a Trust, which won’t provide asset protection from his creditors or any tax benefit, but will ensure some succession planning.

If he’s an LPR then he should qualify to open a 529 College Savings Plan, which honestly is the most tax efficient alternative. Perhaps have the Trustee as the owner of the 529 account, with client funding the revocable Trust.

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dingbat (Mar 29, 2018 - 11:04 pm)

There is a lot wrong with this post.
Tax planning isn’t only for estate tax but also capital gains / step-up basis.
Remarriage protection may be a concern. So could creditor protection. Or there could be issues with the kids.
And there are plenty of other issues that could come into play.

This is like telling someone with a cough to just get some psuedofed

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alphadog15 (Mar 29, 2018 - 11:51 pm)

Yup, you’ll get step up in basis because it’s a revocable Trust included in the settlor’s estate.

No, there won’t be any creditor protection unless, generally speaking it’s irrevocable and not self settled unless it’s placed in a jurisdiction like Nevada.

Yes, a revocable Trust will protect in the event of a second marriage because in the event of the settlor’s death the assets will be distributed according to the terms of the trust, with exception to any forced spousal election of course, which the settlor’s can’t run from anyhow.

But that’s way beyond a simple posting on an anonymous forum which I’m sure the OP and yourself are aware of....you know, you get what you pay for.

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dingbat (Mar 31, 2018 - 11:14 am)

An irrevocable trust will get creditor protection (so long as action has not yet commenced) and can protect against forced spousal election. You can still get a step-up in basis by retaining power of appointment. (and no trust is truly irrevocable - especially with a few judiciously inserted back-doors)

But as you said, beyond a quick internet forum posting.

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