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Model Foreign Situs Integrated Estate Planning Structure: An Overview

By : Barry S. Engel, Esq.

(click here for the audio presentation by Mr. Engel)

 

Please Note:

  1. The planning concepts presented herein have been oversimplified in the interest of facilitating an understanding of the basic concepts involved in integrated estate planning.
  2. It is assumed that the planning structure which follows is implemented at a time when the client has no claims pending, threatened or expected; that the client has no outstanding judgments; and that following all property transfers the client remains solvent and able to pay his or her reasonably anticipated debts as they become due.
  3. The integrated estate planning structure depicted on the following pages is a sample structure only. The design of any given plan is a function of the goals and needs of the client and the particulars of the client's own situation, and the plan must be tailored accordingly. Planning of this nature is case specific and fact intensive.

STEP 1:
Client Creates Domestic Family Limited Partnership

Note 1: By definition the 1% general partner has full control over the FLP and its assets

Note 2: By definition the 99% limited partner has no control over the FLP and its assets


STEP 2:
Client Creates ("Settles") Integrated Estate Planning Trust

Note 3: Domestic trustee can outvote the foreign trustee in most situations

Note 4: The client (the "Settlor") is often the Protector. The Protector usually has the ability to remove and replace trustees and to veto various decisions of the trustees

Note 5: The beneficial class often includes the Settlor, the spouse of the Settlor, and children of the Settlor, one or more charities designated by the Settlor, and others


STEP 3:
Client Gifts Interest as Limited Partner to Trust


STEP 4:
Client Makes Property Transfers to Structure

Note 6: The integrated estate plan will involve a Last Will that upon the death of the client pours-over the client's residuary estate to the IEPT. Other conventional estate planning documents will also be involved (i.e., a durable power of attorney, a health care proxy, and a living will). Other planning tools will be integrated in the appropriate cases (e.g., a QPRT; a CRT; a CLT).


STEP 5:
Multiple Entities Considered7

Note 7: Multiple entities are utilized to diversify terms and provisions; to diversify foreign jurisdictions and foreign trustees for additional protection; to isolate low or no risk assets (e.g., cash, stocks, bonds) from higher risk assets (e.g., real estate, airplane, boat); and to increase options should a threat develop.


STEP 6:
Consider Separate Protection for the Business or Investment Entities.

Planning to protect individually held assets does not necessarily result in the assets of a business or of an investment vehicle also being protected. This “second-tier” or “Level 2” planning may involve a combination of various techniques such as:

  • A trust being settled by the active company, naming the company and/or its owners as the beneficiary(ies);
  • An LP in which the company is a 99% limited partner, and to which liquid assets can be contributed;
  • An LLC in which the company is a 99% member and to which real estate is contributed;
  • A distribution of accumulated liquidity not otherwise reasonably required in the normal course of business;
  • A divisive reorganization to segregate various assets from company activities considered to be more risky than others;
  • An “equity strip” by which the equity in the company is liquefied (as opposed to liquidated), with the proceeds then being protected through one or more of the other techniques (which “equity strip” technique is particularly well-suited for accounts receivable and notes receivable); and
  • A sale of company assets to a leasing company owned by the client’s IEPT, with a subsequent leaseback to the company of the purchased assets.

STEP 7:
Liquidation of Underlying Entity8

Note 8: If and when necessary, the foreign trustee has the power to implement a protective measure by which assets held in a jurisdiction in which a threat has developed can be removed from that jurisdiction and diversified into a safe location. Under this strategy the domestic trustee is fired by the foreign trustee and the foreign trustee liquidates the underlying entity. As a result of the liquidation, 99% of the assets held in the underlying entity are upstreamed to the IEPT and relocated by the foreign trustee.

Upon the particular threat dissipating, the foreign trustee can reappoint one or more domestic trustees and reestablish the underlying entity.

Seminars & Events:

April, 2017 - CELESQ
“An Asset Protection Planning Primer for Estate Planning, Tax and Creditors Rights Lawyers”
Live Web Cast
May 31 – June 1, 2017 - 

SOUTHPAC TRUST OFFSHORE PLANNING INSTITUTE CONFERENCE 2017, “Asset Protection in a Changing World” (31 May 2017) and “Questions & Answer Panel on Industry Challenges to Asset Protection Structures” (1 June 2017)
Las Vegas, Nevada

 

View More Recent Seminars and Events

Contact Information

Barry S. Engel
Email: info@engelreiman.com