Viva Las Vegas!

by John M. Goralka
Sacramento, CA

The Goralka Law Firm is a member of Wealth Counsel, a National organization of estate planning attorneys. The annual symposium was conducted at the Bellagio Resort in Las Vegas, Nevada. The Symposium is a four (4) day educational event. The speakers are nationally recognized experts in their respective areas of expertise.

Courses include a wide variety of topics. While we learned about new tools and techniques, we reaffirmed most of the advance planning techniques or tools that we have used for years. Those tools include:

Upstream Basis Trusts

Designed to hold high-value low-basis assets in trust in order to receive a step-up in income tax basis upon grandpa, grandma or another older relative’s death. This avoids capital gain upon the sale of the asset after the death of the older relative. Prior to that death, the client retains dictatorial control over the assets within the protected trust. The appropriate use of the Upstream Basis Trust had provided transformative changes for many of our client families. For example, real estate investors can sell the real estate investments free of tax in order to cash out for retirement after decades of hard work managing real estate investments.

Optimum Basis and Income Tax Efficiency Trusts (the OBIT)

Can utilize formulas to optimize between estate tax reduction and minimization of capital gains. We always think of a basis step-up at death. However, in a down economy such as in 2007 through 2009, fair market value of an asset could be lower that the asset’s basis which would result in a basis stepdown at death triggering higher capital gains on sale. The OBIT’s formula can prevent a basis stepdown under those circumstances providing greater income tax savings. We first wrote about Optimum Basis Trust in 2016.

Modifying or terminating Existing Trusts

May be appropriate. For example, a revocable trust may provide for an irrevocable B trust to minimize estate tax upon the death of the first spouse. The “cost” of the estate tax savings is the loss of the basis step-up at death triggering higher capital gains upon sale. However, the life-time estate tax exemption has increased substantially. Many B trusts were funded triggering higher capital gains for sales after death even when no estate tax savings were applicable. The Goralka Law Firm has been a leader in this area. Care must be taken because the Internal Revenue Service (IRS) has ruled that termination of an irrevocable trust can be treated as a transfer or sale of the assets at fair market value with zero or no basis. Great care must be taken to avoid that result.

Beneficiary Deemed Ownership Trust (BDOT)

Is a technique to have the beneficiary recognized as the owner and taxpayer for a trust. Trusts have the highest marginal tax rates under US law. The highest marginal tax rate (equal to that of an individual) are triggered with income of only $12,700. For an individual, the same marginal tax rate is applicable only after more than $600,000 of income. Most trusts use the Grantor Trust rule to have the income owed and taxed to the Grantor or Trust creator. However, the BDOT establishes the beneficiary as the owner and taxpayer for the trust income.

Domestic Asset Protection Trusts (DAPT)

Are irrevocable trusts that are designed to protect the assets of the grantor or creator from lawsuits, divorce, and creditor claims. These are self-settled spindrift trusts that protect the assets and property of the trust maker. Currently, 20 states have DAPT laws including Alabama, Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia and West Virginia. Nevada is one of the strongest with a variety of advantages.

Hybrid Asset Protection Trust

Provides the next level of asset. The Hybrid Bridge Trust begins life as a fully formed, funded and operational trust providing substantial asset protection. In the event of crisis or call to action, the Nevada Trustee resigns, and the Cook Islands Trustee is appointed. The Trust is now a fully formed foreign trust with an even higher level of protection. A Foreign Trust is far more complicated to administer due in large part to the required filings with the IRS. The Hybrid Asset Protection Trust needs only to comply with the foreign trusts tax filing if there is actively a call to action and your assets are at risk. The higher administrative costs are tied to the higher asset protection achieved.

Charitable Planning-An Alphabet Soup of Charitable Trusts

Charitable Remainder Trust (CRTs), Charitable Land Trust (CLTs), Split Interest Charitable Income Trust and Donor Advised Funds. Charitable planning, when done correctly can provide substantial income tax savings and substantially increased wealth for your family as well as substantial benefits for your favorite charitable causes. Truly a win-win planning alternative for the right client.

Things to Do in Las Vegas

As the pictures illustrate, Ainur and I found time to enjoy Las Vegas. I had not been there since bringing my son for a soccer tournament more than 12 years ago. While this was Ainur’s first trip to Las Vegas, she has previously visited Macau, a Chinese special administrative region that is known as the Las Vegas in Asia. Macau is the only location in greater China that permits gambling.

We dined at the La Cirque restaurant, which has a French menu. We also ate at Michael Mina inside the conservatory in the Bellagio which focuses on steak, seafood and pasta. We returned to Michael Mina’s again to dine in the Garden House, a semi-private room in the conservatory garden. As you can see from the pictures, this was a truly unique experience. The garden house was surprisingly quiet with the sounds of birds chirping.

Those were just a few of the highlights from our wonderful trip.

John Goralka is the lead attorney and founder of the Goralka Law Firm, P.C., and is an experienced Sacramento estate planning and tax planning lawyer.

For help in Sacramento with estate planning or tax planning, please contact our office.