Planning Potpourri

Doctor Protection. Whatever happens with the estate tax, most physicians are more worried about malpractice then they are the estate tax (and they don’t love the estate tax!). Doc can set up a self settled trust in any jurisdiction permitting it and remain a beneficiary at the discretion of the independent trustee. There are obvious risks and issues but this can protect the dough from Doc’s future malpractice claimants.  A common transaction for Doc to get assets into such a trust is for him or her to sell assets to this trust. Since it is a “grantor trust” Doc doesn’t recognize any gain on the sale. The assets, and the growth in them, should have some protection from claimants. But there’s a better approach. Dick Oshins, well tanned estate tax maven from Las Vegas, prescribes a planning approach that he affectionately refers to as a “BDIT,” to give doctors that restful night sleep.  Instead of Doc setting up a trust and facing the risks involved, Mom set up the trust. Mom expressly does not reserve any of the powers that would make the trust a grantor trust to her (i.e., taxable to her for income tax purposes). The trust includes an annual demand or Crummey power. This is almost standard fare for the typical insurance or kids trust. Doc is the only beneficiary of this trust.  Doc’s Crummy power withdrawal right makes the trust a grantor trust as to Doc.  Doc can therefore sell assets to the trust without gain, and obtain the desired protection Doc supposedly gets in the typical asset protection trust, but perhaps better since Doc didn’t set up the trust, Mom did. Cool. But ya’d better get your BDIT while you can. Word is that Crummey powers that are a key to BDITs and many other trusts, might be put on the tax chopping block. Think about it. Give the Republicans the $5M estate tax exclusion and 35% rate they want, but eliminate all the fund estate tax toys, so most folks end up paying higher tax. And for the nervous Nellie’s in the medical world that will make it all the harder (perhaps impossible) to do asset protection as well.

Family Ties.  If you’re not into the fireworks that accompany most estate disputes, take some proactive steps to lessen the likelihood of explosions. Here are a few ideas:A letter from the testator explaining the plan, and guiding heirs, may have a significant impact.    Some experts recommend you should dictate a letter the attorney can edit.  Don’t video tape without careful evaluation as it can preserve mistakes and most estate litigators caution against it. Use a no contest or mandatory mediation provision.  Add conflict management provisions to the estate planning documents. Courageously have uncomfortable conversations with your advisers. Thanks to Paul Fisher of Pepperdine School of Law.

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