May 1, 2014
How Parents Keep Control
Both During Their
Lifetimes
And After They Are
Dead
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
1

How Parents Keep Control
Table of Contents
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
2
1. Introduction: The Problem. p. 5
2. Why Do Clients Dislike Irrevocable Trusts? p. 6
3. What Happens As A Result Of No Flexibility? p. 7
4. The Formula. p. 8
5. What Clients Will Do If They Feel Comfortable. p. 9
6. Jump Right In: The Completed Gift Asset Protection Trust. p. 10
6.1. Direction Of The Lifetime Exclusion. p. 11
6.2. Rule Against Self-Settled Spendthrift Trusts. p. 13
6.3. Cook Islands SSST Rule. p. 14
6.4. Nevada SSST Rule. p. 15
6.5. Diagram 1. p. 16
6.6. Diagram 7. p. 22
6.7. Diagram 8 p. 23
7. List of Techniques. p. 24
8. A Summary. p. 27
8.1. How Can Grantor Retain Powers Directly? p. 28
8.2. How Can Grantor Retain Powers Jointly? p. 29
8.3. How Can Grantor Retain Powers Through A Trustee? p. 30
8.4. How Can Grantor Retain Powers Through A Protector? p. 32
8.5. How Can Grantor Retain Powers Through Others? p. 33
9. Another Way Of Classifying Ways To Retain Control. p. 34
9.1. Change The Control Person. p. 35
9.2. Change The Donees/Beneficiaries. p. 36
9.3. Change How And When They Get Their Gift/Inheritance. p. 37

How Parents Keep Control
Table of Contents [continued]
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
3
10. Danger Of Too Much Control. p. 39
10.1. In re Yerushalmi. p. 40
10.2. In re Schwarzkopf. p. 41
11. Technique 1: Rev. Rul. 95-58. p. 43
11.1. Sample Trust Language. p. 44
11.2. IRC Section 672(c). p. 53
11.3. Diagram. p. 54
12. Technique 2: State Law. p. 55
12.1. California Probate Code. p. 56
12.2. Maine Probate Code. p. 62
12.3. Other States. p. 64
13. Technique 3: Protectors. p. 65
13.1. What Is A Trust Protector? p. 66
13.2. Nevada Statutes. p. 67
14. Technique 4: Single Member LLCs. p. 72
14.1. Three Types Of Liability. p. 74
14.2. Diagrams. p. 81
14.3. Variation 1: SMLLC with SSST. p. 85
14.3.1. Vanilla Structure. p. 86
14.3.2. APT Structure. p. 88
14.3.3. Why In California We Use Nevada Law. p. 89
14.4. Variation 2: The Very Best Structure. p. 91
14.5. Variation 3: Partnership (Or LLC) To Own An Insurance Policy. p. 93

How Parents Keep Control
Table of Contents [continued]
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
4
15. Technique 5: Private Trust Company. p. 95
15.1. Letter To Nevada Financial Institutions Division. p. 96
15.2. Approval Letter From F.I.D. p. 97
15.3. California. p. 98
15.4. Diagram. p. 102
16. Technique 6: Grantor Trust Flip Switch. p. 104
16.1. Non-Equation. p. 105
16.2 Powers Used To Achieve Grantor Trust Status. p. 108
16.3. IRC Section 675(4)(C): Reacquire Trust Corpus. p. 110
16.4. IRC Section 677(a)(3): Use Trust Income To Buy
Insurance On Grantor’s Life. p. 112
16.5. The Switch. p. 113
17. Technique 7: Powers Of Appointment. p. 115
17.1. IRC Section 2041. p. 116
17.2. Sample Trust Language. p. 117
18. Technique 8: Trustee’s Decanting Powers. p. 118
19. Technique 15: The Bar Mitzvah DVD. p. 121
20. Sample Irrevocable Trust Maintenance Program. p. 125
21. Final Advice On How To Control Children: A Good Whipping. p. 126
22. Questions And Answers. p. 128

How Parents Keep Control:
The Problem
Parents are used to being in dictatorial control while they are
alive. On the other hand, trusts must be irrevocable for estate tax and
asset protection purposes. So people often get turned off the moment the
word "irrevocable“ comes up.
And, even when people move forward with an irrevocable trust,
they often regret it later when they realize it can't be changed! And if the
client can't change a trust later the advisor may regret it too, especially
when the trust may later need to be adapted to new estate tax laws. We’ll
see how flexibility can be built into irrevocable trust.
Also, some parents do not like to contemplate what will happen
with their wealth after they are gone. Will their children and later issue
dissipate the wealth unwisely? We’ll see how the parents can retain
control even from the grave if they wish.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
5

How Parents Keep Control
Why Do Clients Dislike Irrevocable Trusts?
Why do I want to transfer (give away) assets to a trust (which does not
benefit me) where I can’t (in the future) change my mind?
What if I decide in 10 years that I don’t like the Trustee? What if the
Trustee stops doing what I tell him (or her) to do?
What if I no longer like my kids and I want to leave the assets to my
grandchildren? Or to charity? Or what if I want to cut out one of my children and
leave it to the other two?
What if I want to change the manner of distribution? Instead of outright
on the death of the survivor of the two of us, I want the kids to get income only
until they are 50, and then 1/3rd of the principal at 50, 60 and 70?
What if I now want to make provision for the children of my second
marriage? And for my second wife? And for my favorite charity?
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
6

How Parents Keep Control
What Happens As A Result Of No Flexibility?
(i) The client may decide “to he## with planning, I’d rather keep control.”
(ii) The client may decide to postpone planning until he can feel
comfortable with the people and the decision.
(iii) The client may decide to set up the structures and then subvert them
by, when later dissatisfied, having the cooperative trustee transferring the
money back to the client/grantor/donor.
(Exposing the trustee to the wrath of the beneficiaries when the IRS or a creditor
succeeds in striking down the tax or creditor protection benefits.)
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
7

How Parents Keep Control
All Tax And Asset Protection Planning Involves This Formula:
“own” control
“own” is a technical term, strictly defined.
“Control” is a common English word which the clients
understand.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
8

9
If you are successful in ameliorating your clients’ fears,
then they will be more comfortable proceeding with the
important planning that they need, including:
1. irrevocable insurance trusts;
2. grantor retained annuity trusts;
3. qualified personal residence trusts;
4. domestic asset protection trusts;
5. foreign asset protection trusts;
6. charitable lead and annuity trusts;
7. charitable remainder unitrusts and annuity trusts;
8. self-cancelling installment notes;
9. private annuities;
10. SCIN-GRATs;
11. private foundations and public charities;
12. family limited partnerships and FLLCs;
13. etc.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
9
How Parents Keep Control

10
Completed Gift
Asset Protection
Trust
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
10
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
11
$5,340,000 Lifetime Exclusion per person.
At a 2.5% COLA:
2015 $5,470,000?
2016 $5,610,000?
2017 $5,750,000?
2018 $5,895,000?
2019 $6,042,000?
Completed Gift Asset Protection Trust
How Parents Keep Control

No Man’s Fortune Is Safe
As Long As Congress Is In Session
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
12
Completed Gift Asset Protection Trust
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
13
California’s Rule against Self-Settled Spendthrift Trusts is in
Probate Code §15302(a):
“If the settlor is a beneficiary of a trust created by the settlor and the
settlor's interest is subject to a provision restraining the voluntary or
involuntary transfer of the settlor's interest, the restraint is invalid against
transferees or creditors of the settlor. The invalidity of the restraint on
transfer does not affect the validity of the trust.”
See §112.035 of the Texas Property Code: “if the settlor is also a
beneficiary of the trust, a provision restraining the voluntary or involuntary
transfer of his beneficial interest does not prevent his creditors from
satisfying claims from his interest in the trust estate.”
Completed Gift Asset Protection Trust
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
14
Typical offshore law permitting self-settled spendthrift trusts is
13F(1) of the Cook Islands International Trusts Act provides as follows:
“For the purposes of this Act, and notwithstanding any rule of law
or equity to the contrary, it shall be lawful for an instrument or disposition to
provide that any estate or interest in any property given or to be given to any
beneficiary shall not during the life of that beneficiary, or such lesser period
as may be specified in the instrument or disposition, be alienated or pass by
bankruptcy, insolvency or liquidation or be liable to be seized, sold,
attached, or taken in execution by process of law and where so provided
such provision shall take effect accordingly.” See also §13C, entitled
“Retention of control and benefits by settlor.”
Completed Gift Asset Protection Trust
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
15
The general tone of Nevada’s protection for spendthrift trusts is
evident in N.R.S. §166.120(2):
“Payments by the trustee to the beneficiary shall be made only to
and into the proper hands of the beneficiary and not by way of acceleration
or anticipation, nor to any assignee of the beneficiary, nor to or upon any
order, written or oral, given by the beneficiary, whether such assignment or
order be the voluntary contractual act of the beneficiary or be made
pursuant to or by virtue of any legal process in judgment, execution,
attachment, garnishment, bankruptcy or otherwise, or whether it be in
connection with any contract, tort or duty.”
However, there is a great deal of other such supportive language.
Completed Gift Asset Protection Trust
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
16
Completed Gift Asset Protection Trust
Diagram 1 “As Is”
Harold and
Wanda
$20,000,000 Estate
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
17
Completed Gift Asset Protection Trust
Diagram 2
Harold and
Wanda
Self-Settled Spendthrift Trust
(in the state in which the
trustee is located)
Establish The Domestic Asset Protection Trust
Trust
Company
(NV or AL)
(i) heirs of H and W
(ii) charities
discretion to:
(iii) Harold and Wanda
Grantors
(Settlors)
(Trustors)
Co-Trustee
#1
Beneficiaries
Trusted Best
Friend
Co-Trustee
#2
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
18
Completed Gift Asset Protection Trust
Diagram 3
Harold and
Wanda
Self-Settled Spendthrift Trust
(in state in which
trustee is located)
Fund The Domestic Asset Protection Trust
Trust Company
& Best Friend
(i) heirs of H and W
(ii) charities
discretion:
(iii) Harold and Wanda
Grantors
(Settlors)
(Trustors)
Co-
Trustees
Beneficiaries
$8,000,000
(they used their previous $1,000,000
exclusions - now they file new 709s)
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
19
Completed Gift Asset Protection Trust
Diagram 4
SSST
Establish The Single Member LLC
Trust Company
& Best FriendCo-
Trustees
$8,000,000
Single Member LLC
(in state in which
trust is located)
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
20
Completed Gift Asset Protection Trust
Diagram 5 Option - Establish A Private Trust Company
Trust Company
(Nevada or Alaska)
Harold and
Wanda
Nevada Heirs’
Trust
Step 1:
Grantors
(Settlors)
(Trustors)
Step 2:
Sole
Shareholder
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
21
Diagram 6 Establish The PTC’d SSST
Trust Company
(Nevada Unregulated)
Harold and
Wanda
Nevada Heirs’
Trust
Grantors
Self-Settled Spendthrift
Trust
(in state in which
trustee is located)
Trustee
(i) heirs of H & W
(ii) charities
(iii) H & W Beneficiaries
Completed Gift Asset Protection Trust
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
22
Completed Gift Asset Protection Trust
Diagram 7 Establish The LLC For The PTC’d SSST
Trust Company
(Nevada Unregulated)
Self-Settled Spendthrift
Trust
(in the state in which the
trustee is located)
Trustee
(i) heirs of H & W
(ii) charities
(iii) H & W
Beneficiaries
Single (?) Member LLC
(in same state in which trust is located)
(H&W are non-member managers)
How Parents Keep Control

Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
23
Completed Gift Asset Protection Trust - NNG
Diagram 8 If You Want A Nevada Non-Grantor Trust
(to avoid California income tax on non-California source income)
Trust Company
(Nevada Unregulated)
Self-Settled Spendthrift
Trust
(in the state in which the
trustee is located)
Trustee
Contingent
beneficiaries:
(i) heirs of H & W
(ii) H & W
Single (?) Member LLC
(in same state in which trust is located)
(H&W are non-member managers)
How Parents Keep Control

How Parents Keep Control
List of Techniques
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
24

How Parents Keep Control
(i) Rev. Rul. 95-58: grantor changes trustee.
(ii) State Law, e.g., Cal. Prob. Code §§15403 and 15404.
(iii) Protectors (powers limited only by imagination).
(iv) Single Member LLCs.
(v) Private Trust Company.
(vi) Grantor Trust Flip Switch.
(vii) Powers of Appointment.
(viii) Trustee’s “decanting” powers, e.g., to change trust situs.
(ix) Trustee’s power to change trust due to tax laws.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
25

How Parents Keep Control
(x) Trustee’s power to terminate trust and distribute as needed.
(xi) Distribution advisor.
(xii) Distribution trustee (to create a “beneficiary controlled” trust).
(xiii) Selling assets from one trust to another (common with ILITs).
(xiv) Independent Board Of Directors.
(xv) The Bar Mitzvah DVD.
(xvi) Charitable Foundation to give post-mortem control.
(xvii) Extended distribution provisions, including incentive
distribution, drug and cult clauses.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
26

How Parents Keep Control
A Summary
1. Grantor can retain power directly.
2. Grantor can retain power jointly.
3. Grantor retain power indirectly through:
3.1. Trustee;
3.2. Protector; or
3.3. Others.
The assignment of a technique to a particular category is ultimately arbitrary, as some
techniques might be appropriate in more than one category, e.g., one technique labeled
“directly” might be viewed as “jointly”. But having categories helps us think about them.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
27

How Parents Keep Control
How Can The Grantor Retain Powers Directly?
1. Rev. Rul. 95-58: grantor changes trustee and names new one (as
long as the new one is not “related or subordinate.” IRC Section
672(c).
2. Single Member LLCs.
3. Grantor Trust Flip Switch.
4. Powers of Appointment.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
28

How Parents Keep Control
How Can The Grantor Retain Powers Jointly?
1. State Law, e.g., Cal. Prob. Code §§15403 and 15404.
2. Private Trust Company.
3. Selling assets from one trust to another (common with ILITs).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
29

How Parents Keep Control
How Can The Grantor Retain Powers Through A
Trustee?
1. Trustee’s “decanting” powers, e.g., to change trust situs.
2. Trustee’s power to change trust due to tax laws.
3. Trustee’s power to terminate trust and distribute as needed.
4. Distribution trustee (to create a “beneficiary controlled” trust).
5. Extended distribution provisions, including incentive
distribution, drug and cult clauses.
6. Powers which are not “against” the beneficiaries.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
30

How Parents Keep Control
There are two types of fiduciaries:
The one who acts after you are dead. That is the person whose
judgment you respect.
The one who acts while you are alive. That is the person who
asks “how high?” when you say “jump.”
We explain the difference to our clients. We can draft the
documents so that upon the client’s death or incapacity, the one who
asks “how high?” is automatically removed in favor of the one whose
judgment is trusted.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
31

How Parents Keep Control
How Can The Grantor Retain Powers Through A
Protector?
Powers limited only by imagination. Examples:
1. Anti-beneficiary provisions, e.g., increase or decrease a beneficiary’s share.
2. Remove or add a beneficiary.
3. Remove or appoint a trustee.
4. Direct or veto a trust distribution.
See NRS Section 163.5547 for the definition of “protector” and 163.5553 for the powers of a
protector. See 12 Del. C. Section 3313 regarding advisers in general, and (f) in particular
regarding protectors.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
32

How Parents Keep Control
How Can The Grantor Retain Powers Through
Others?
1. Independent Board Of Directors.
2. Beneficiary’s Powers of Appointment.
3. Charitable Foundation to give post-mortem control.
4. The Bar Mitzvah DVD.
5. Direct or veto a trust distribution.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
33

How Parents Keep Control
Another Way Of Classifying
The Ways To Retain Control
The Grantor Can:
1. Change the control person.
2. Change the donees/beneficiaries.
3. Change How And When Beneficiaries
Get The Gifts Or Inheritance.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
34

How Parents Keep Control
How Can Clients Be The Control Person Or Retain The
Right To Change The Control Person?
1. Rev. Rul. 95-58. IRS approves grantor’s power to change trustees
without causing estate tax inclusion.
2. Irrevocable trust owns an LLC of which the parent is the non-
member manager.
3. Protectors.
4. Grantor Trust “Flip” Switch.
5. Extended distribution provisions.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
35

How Parents Keep Control
How Can Clients
Change The Donees/Beneficiaries?
1. Protectors.
2. Power Of Appointment.
3. Private Trust Company.
4. State Law, e.g., Cal. Prob. C. §§15403 and 15404.
5. Selling assets from one trust to another.
6. Extended distribution provisions, including incentive distribution,
drug (including testing) and cult clauses.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
36

How Parents Keep Control
How Can Clients Change How And When
Beneficiaries Get Gifts or Inheritance
1. Protectors.
2. Power Of Appointment.
3. Private Trust Company.
4. State Law, e.g., Cal. Prob. C. §§15403 and 15404.
5. Selling assets from one trust to another.
6. Extended distribution provisions, including
incentive distribution, drug and cult clauses.
7. Irrevocable trust owns an LLC of which the parent is the non-member
manager.
8. Grantor Trust “Flip” Switch.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
37

How Parents Keep Control
Caution:
Do not leave your children liquid assets.
If you do, they will drink them.
(We do not represent the children. We consider treating the children as the enemy; as the parents
age the children may well become that to their parents; as the parents age, the children think they
are smarter than their parents. Also, you want the children – or the trustee of the children’s trust,
to be represented by separate counsel for estate and gift tax purposes.)
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
38

How Parents Keep Control
Caution:
Danger Of Too Much Control
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
39

How Parents Keep Control
In re Yerushalmi
2009 WL 2982964, Bkrtcy. E.D.N.Y. (Sept. 14, 2009)
In 1995 the Yerushalmis consulted an estate planning lawyer purported to plan for the
long-term care of their youngest son, Danny, who was diagnosed with dysautonomia, a terminal
disease. They said that the family attorney advised they to create a QPRT. H transferred his
interest in the residence to W, and W transferred the entire residence to the QPRT on May 9, 1996.
Danny died in 2002. H and W filed for divorce in 2003.
On April 10, 1998, a former law partner of H sought an accounting due to alleged
diversion of receivables. Nine years later there was a judgment against H. Four months later H
filed for Chapter 11. Three months later it was converted to Chapter 7. Fifteen months later the
BK Trustee filed to avoid the transfers to the QPRT or recover the $2.5 million judgment on the
ground the transfers were fraudulent. Since his fraudulent conveyance argument was barred by
the 6 year statute of limitations, the trustee amended his complaint to pierce the veil of the trust
and declare that it was H’s alter ego.
The court allowed the claim to proceed, indicating that it was subject to a 20 year
statute of limitations on enforcement of judgments. Note: when finally tried the alter ego claim
was denied. Case No. 807-72816-reg, Nov. 19.2012.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
40

How Parents Keep Control
In re Schwarzkopf
No. 08-56974 (November 23, 2010, Ninth Circuit)
Debtors created the Apartment Trust and the Grove Trust on June 15, 1992. They
named their minor child Sydnee beneficiary and appointed Juan Briones trustee. They
transferred stock of a worthless corporation to the Apartment Trust and a time when they were
insolvent. The court also found that it was done for fraudulent purposes. The only asset in the
Grove trust initially was $25. In 1997 a shell corporation owned by H bought avocado lots for the
Grove Trust. The Grove Trust paid H $105,000 in unexplained fees in 2002. The Trustee provided
payments to H from both trusts “without complete documentation.” H asked for an received
reimbursement from one of the trusts for another daughter’s wedding and for a life insurance
policy; the Trustee testified that he did not know who H named as the beneficiary. The debtors
lived rent-free with Sydnee in a home bought by the Grove Trust and in one bought by the
Apartment Trust.
The Trustee maintained no books or records for either trust before 2000 and often
intermingled their funds. The trusts shared a bank account for part of 2002 and 2003. The Trustee
transferred money between the trusts and made purported loans between them that were not
documented, had no terms for repayment and were never repaid. The trusts also paid each
other’s expenses.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
41

How Parents Keep Control
In re Schwarzkopf [continued[
In October, 2003, Debtors filed bankruptcy petitions seeking to discharge
$5.4 million in debt. The BK trustee filed an adversary complaint seeking to recover
the $4,000,000 in the Apartment Trust and the Grove Trust.
The courts held that the Apartment Trust was invalid because one of the
Debtors’ purposes in creating it was to defraud creditors. Therefore, the alter ego
issue was not relevant. “Properly designating a minor child as a beneficiary does not
validate a trust that was created with an improper purpose.”
The court held that the Grove Trust was H’s alter ego because he acted as
the owner of the trust and its assets: “the named trustee had no role nor took any
action…other than to write checks as demanded by [debtor].” He “dominated and
controlled all decisions of the Grove Trust.”
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
42

How Parents Keep Control
Technique #1: Rev. Rul. 95-58.
The Grantor’s (Parent’s) Continuing Ability To
Remove The Trustee And Appoint A New One Without
Causing Inclusion Of The Trust Property In The
Grantor’s Taxable Estate.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
43

How Parents Keep Control
Sample Trust Language
Section 6.2. Grantor’s Power. Grantor may, in the Grantor’s
discretion, remove any and all Trustees, designate successor
Trustees in their place and appoint co-Trustees. [1]
However, the Grantor may not appoint a related or subordinate
party as the successor Trustee.
[1] Rev. Rul. 95-58 (9/5/95): even had the decedent possessed the power to remove the
trustee and appoint an individual or corporate successor trustee that was not related or
subordinate (within the meaning of §672(c)), the decedent would not have retained a
trustee’s discretionary control over trust income. Section 672(c) defines “related or
subordinate party” as “any non-adverse party who is (1) the grantor’s spouse if living with
the grantor; (2) any one of the following: The grantor’s father, mother, issue, brother or
sister; an employee of the grantor; a corporation or any employee of a corporation in which
the stock holdings of the grantor and the trust are significant from the viewpoint of voting
control; a subordinate employee of a corporation in which the grantor is an executive.”
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
44

How Parents Keep Control
Technique #1: Rev. Rul. 95-58 [continued].
For some reason, this is not a common feature of
irrevocable trusts. We include it in every irrevocable
trust we draft. Why wouldn’t you want to give that
comfort to every parent?
By the way, it seldom comes up; it’s seldom
used. But I feel a lot more comfortable when I turn the
pages in a trust and – ahhhhh – there’s the power. I can
make the parent feel comfortable. And “comfort” is
what you owe the client.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
45

How Parents Keep Control
Rev. Rul. 95-58 (August 4, 1995)
[The Ruling was prompted by IRS losses in court.]
The IRS has reconsidered whether a grantor's reservation of an
unqualified power to remove a trustee and appoint a new trustee
(other than the grantor) is tantamount to a reservation by the grantor of
the trustee's discretionary powers of distribution. This issue is
presented in Rev. Rul. 79-353, as modified by Rev. Rul. 81-51. An
analogous issue is presented in Rev. Rul. 77-182. The reconsideration is
caused by the recent court decisions in Estate of Wall, 101 T.C. 300
(1993), and Estate of Vak, 973 F.2d 1409 (8th Cir. 1992), rev'g T.C. Memo
1991- 503.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
46

How Parents Keep Control
Rev. Rul. 95-58 (Continued)
[The ruling next discusses the two sections that could
cause inclusion in the grantor’s estate.]
§2036(a) of the Internal Revenue Code, in general,
provides that the value of the gross estate includes the
value of all property to the extent of any interest in the
property that was transferred by the decedent (for less than
adequate consideration) if the decedent has retained for life
the right, alone or in conjunction with any person, to
designate the person who shall possess or enjoy the
property or the income therefrom.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
47

How Parents Keep Control
Rev. Rul. 95-58 (Continued)
§2038(a)(1), in general, provides that the value of the
gross estate includes the value of all property to the
extent of any interest in the property that was transferred
by the decedent (for less than adequate consideration) if
the decedent held a power, exercisable alone or in
conjunction with any person, to change the enjoyment of
the property through the exercise of a power to alter,
amend, revoke, or terminate.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
48

How Parents Keep Control
Rev. Rul. 95-58 (Continued)
[If the transfer is complete, the plan didn’t work.]
§25.2511-2(c) of the Gift Tax Regulations provides that a
gift of property is incomplete to the extent that the donor
reserves the power to revest the beneficial title to the
property in himself or herself or the power (other than a
fiduciary power limited by a fixed or ascertainable standard)
to name new beneficiaries or to change the interest of the
beneficiaries among themselves. See also §25.2511-2(f).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
49

How Parents Keep Control
Rev. Rul. 95-58 (Continued)
[The Ruling distinguishes the Regs. from the cases.
For purposes of §§2036 and 2038, it is immaterial in what capacity
the power was exercisable by the decedent. Thus, if a decedent
transferred property in trust while retaining, as trustee, the
discretionary power to distribute the P&I, the trust property will be
includible in the decedent's gross estate under §§2036 and 2038. The
§§2036 and 2038 regs explain that a decedent is regarded as having
possessed the powers of a trustee if the decedent possessed an
unrestricted power to remove the trustee and appoint anyone
(including the decedent) as trustee. Regs. §§20.2036-1(b)(3) and
20.2038-1(a).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
50

How Parents Keep Control
Rev. Rul. 95-58 (Continued)
[The first taxpayer victory. The second is omitted.]
In Estate of Wall, the decedent had created a trust for the benefit
of others and designated an independent corporate fiduciary as
trustee. The trustee possessed broad discretionary powers of
distribution. The decedent reserved the right to remove and replace
the corporate trustee with another independent corporate trustee.
The court concluded that the decedent's retained power was not
equivalent to a power to affect the beneficial enjoyment of the trust
property as contemplated by §§2036 and 2038. See also Estate of
Headrick, 93 T.C. 171 (1989), aff'd 918 F.2d 1263 (6th Cir. 1990).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
51

How Parents Keep Control
Rev. Rul. 95-58 (Continued)
In view of the decisions in the above cases, Rev. Rul.
79-353 and Rev. Rul. 81-51 are revoked. Rev. Rul. 77-182
is modified to hold that even if the decedent had possessed
the power to remove the trustee and appoint an individual
or corporate successor trustee that was not related or
subordinate to the decedent (within the meaning of
§672(c)), the decedent would not have retained a trustee's
discretionary control over trust income.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
52

How Parents Keep Control
IRC §672(c) Related or subordinate party.
…“related or subordinate party” means any nonadverse party who
is—
(1) the grantor's spouse if living with the grantor;
(2) any one of the following: The grantor's father, mother, issue,
brother or sister; an employee of the grantor; a corporation or any
employee of a corporation in which the stock holdings of the grantor and
the trust are significant from the viewpoint of voting control; a subordinate
employee of a corporation in which the grantor is an executive.
…a related or subordinate party shall be presumed to be subservient to
the grantor in respect of the exercise or nonexercise of the powers
conferred on him unless such party is shown not to be subservient by a
preponderance of the evidence.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
53

How Parents Keep Control
Rev. Rul. 95-58 (Continued)
Dad Trustee
Irrevocable
Trust
#1: Transfers
assets to the
trust
#3:
Controls
the trust
#2: Retains right
to remove trustee
and name new
(not related or
subordinate) one
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
54

How Parents Keep Control
Technique #2: State Law.
The Ability To Modify An Otherwise Irrevocable
Trust Using The Provisions Of State Law.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
55

How Parents Keep Control
CALIFORNIA PROBATE CODE [Edited stylistically to improve clarity]
§15403. Modification or Termination of Irrevocable Trust
by All Beneficiaries.
(a) Except as provided in (b), if all beneficiaries of an
irrevocable trust consent, they may compel modification or
termination of the trust upon petition to the court.
(b) If the trust’s continuance is necessary to carry out a
material trust purpose, it cannot be modified or terminated
unless the court, in its discretion, determines that the reason for
doing so under the circumstances outweighs the interest in
accomplishing the material purpose. …
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
56

How Parents Keep Control
§15403. Modification or Termination of Irrevocable Trust
by All Beneficiaries.
Example: Trust was drafted to benefit Dad’s two sons. Trust named
the two sons as the beneficiaries. (Most trusts use general language,
e.g., all children of grantor.) Trust owned a large ($20,000,000)
insurance policy on Dad’s life.
Dad later remarried and had a daughter. The two sons (minors),
represented by their mother (Dad’s first wife), filed a petition with the
Probate Court to modify the trust to include the daughter (also a minor)
as an equal beneficiary. (Had wife #1 failed to do so, Dad could have
easily reduced the share for the sons or disinherited them from the rest
of his massive estate.) Since the sons were minors and their mother
was his ex-wife, we felt a court order was necessary.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
57

How Parents Keep Control
CALIFORNIA PROBATE CODE
[Edited stylistically to improve clarity]
§15404. Modification or termination by settlor and all beneficiaries
(a) If the settlor and all beneficiaries of a trust consent, they
may compel the modification or termination of the trust.
(b) If any beneficiary does not consent to the modification or
termination of the trust, upon petition to the court, the other
beneficiaries, with the consent of the settlor, may compel a
modification or a partial termination of the trust if the interests of
the beneficiaries who do not consent are not substantially
impaired.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
58

How Parents Keep Control
CALIFORNIA PROBATE CODE
[Edited stylistically to improve clarity]
§24. Beneficiary
"Beneficiary" means a person to whom a donative transfer of
property is made or that person's successor in interest, and:
(a) As it relates to the intestate estate of a decedent, means an heir.
(b) As it relates to a decedent’s testate estate, means a devisee.
(c) As it relates to a trust, means a person who has any present or
future interest, vested or contingent.
(d) As it relates to a charitable trust, includes any person entitled to
enforce the trust.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
59

How Parents Keep Control
Huscher v. Wells Fargo Bank (2004), 121 CA 4th 956:
Modification of a trust by the statutorily
prescribed procedure is effective unless the
trust’s stated modification procedure is
explicitly or implicitly exclusive (decided under
predecessor to Probate Code §15401 – former
Civ. Code §2280, which was repealed in 1986).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
60

How Parents Keep Control
§15404. Modification or termination by settlor and all beneficiaries
Example: The second successor trustee of the Trust was a bank. Dad
and Mom wanted to remove the bank in favor of their two children acting
together as the second successor co-trustees should that come to pass.
Also, Dad and Mom no longer felt that it was necessary to have principal
distributions at ages 35, 40 and 45 after the death of the survivor of Dad
and Mom; outright distribution would be fine.
Since this trust instrument gave no other ways to accomplish the
modification, Dad and Mom and the two children signed a document to
modify the Trust in both respects. The children represented their own
minor children. All agreed that a court order was unnecessary.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
61

How Parents Keep Control
MAINE TITLE 18-B §410.
Modification or termination of trust; proceedings
for approval or disapproval
2. Modification or termination proceeding.
A proceeding to approve or disapprove a proposed
modification or termination under sections 411 to 416, or
trust combination or division under section 417, may be
commenced by a trustee or beneficiary, and a proceeding to
approve or disapprove a proposed modification or
termination under section 411 may be commenced by the
settlor. The settlor of a charitable trust may maintain a
proceeding to modify the trust under section 413.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
62

How Parents Keep Control
MAINE TITLE 18-B §411.
Modification or termination of noncharitable
irrevocable trust by consent
1. Consent of settlor and all beneficiaries. If the settlor and all beneficiaries
consent to the modification or termination of an irrevocable trust, the court
shall enter an order approving the modification or termination even if the
modification or termination is inconsistent with a material purpose of the
trust, if the court finds that the modification or termination is in the best
interests of the beneficiaries. A settlor's power to consent to a trust's
modification or termination may be exercised by an agent under a power of
attorney only to the extent expressly authorized by the power of attorney or
the terms of the trust; by the settlor's conservator with the approval of the
court supervising the conservatorship if an agent is not so authorized; or
by the settlor's guardian with the approval of the court supervising the
guardianship if an agent is not so authorized and a conservator has not
been appointed.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
63

How Parents Keep Control
Other States
Missouri Revised Statutes Chapter 456, Section 456.4A-411
Ohio Revised Code Section 5804.11
Alaska Statutes 13.36.360
Kansas Uniform Trust Code 58a-411
Michigan Compiled Laws 700.7411
New Mexico 46A-4-411
Note how they all use “411” in some fashion. That means they derive
from the Uniform Trust Code. A total of at least 21 states have adopted
the UTC.
So here’s how I would explain it: State law allows you a convenient
way to change an irrevocable trust, even with out going to court.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
64

How Parents Keep Control
Technique #3: Protectors.
Appointing Someone In The Irrevocable
Trust Who Has The Power To Make Selected
Changes In The Future, Presumably At The
Urging Of The Grantor (Parent), Without A
Duty To The Beneficiaries.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
65

How Parents Keep Control
What Is A Trust Protector?
In offshore Foreign Asset Protection Trusts the role of "Asset
Protector" is a standard. Offshore countries have extensive
networks of Trust Companies specifically designed to
accommodate the implementation of Trust Agreements with
ready Trustees. The election to have a TP, who is usually a U.S.
Person, is a normal offshore business transaction.
Although in Foreign Asset Protection Systems the TP role is
standard, in the U.S. only a few states have a legally recognized
the dual existence of Trustee and Trust Protector. Those states
include Alaska, DE, ID, NV, SD, and Wyoming.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
66

How Parents Keep Control
Nevada Revised Statutes. [as a sample]
NRS 163.5547 “Trust protector” defined. “Trust
protector” means any person whose appointment is
provided for in the instrument.
(Added to NRS by 2009, 788)
NRS 163.554 “Fiduciary” defined. “Fiduciary” means a
trustee or custodian under any instrument, or an executor,
administrator or personal representative of a decedent’s
estate or any other person, including an investment trust
adviser, trust protector or a trust committee which is acting
in a fiduciary capacity for any person, trust or estate.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
67

How Parents Keep Control
Why Do You (Grantor – Parent) Want The
Protector To Not Be A “Fiduciary”?
If the Protector is a “Fiduciary,” the Protector owes a duty
to the beneficiaries. By contrast, the Grantor (Parent) wants
the Protector to do whatever the Parent wants done. That
may be something contrary to the best interests of the
beneficiaries, e.g., to cut one of them out; to bring in a new
beneficiary; to change the manner of distribution.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
68

How Parents Keep Control
NRS 163.5553 Powers of trust protector.
1. A TP may exercise the powers provided…in the instrument in the best
interests of the trust. The powers exercised by a TP are at the sole discretion
of the TP and are binding on all other persons. The powers granted to a TP may
include, without limit, the power to:
(a) Modify or amend the instrument to achieve a more favorable tax status
or to respond to changes in federal or state law.
(b) Modify or amend the instrument to take advantage of changes in the rule
against perpetuities, restraints on alienation or other state laws restricting the
terms of a trust, the distribution of trust property or the administration of the
trust.
(c) Increase or decrease the interests of any beneficiary under the trust.
(d) Modify the terms of any power of appointment granted by the trust. A
modification or amendment may not grant a beneficial interest to a person which
was not specifically provided for under the trust instrument.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
69

How Parents Keep Control
NRS 163.5553 Powers of trust protector (continued)
(e) Remove and appoint a trustee, trust adviser, investment committee
member or distribution committee member.
(f) Terminate the trust.
(g) Direct or veto trust distributions.
(h) Change the location or governing law of the trust.
(i) Appoint a successor trust protector or trust adviser.
(j) Interpret terms of the instrument at the request of the trustee.
(k) Advise the trustee on matters concerning a beneficiary.
(l) Review and approve a trustee’s reports or accounting.
2. The powers provided pursuant to subsection 1 may be incorporated by
reference to this section at the time a testator executes a will or a settlor signs a
trust instrument. The powers provided pursuant to subsection 1 may be
incorporated in whole or in part.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
70

How Parents Keep Control
The TP’s power comes from the trust instrument. It
sets forth the dual function of the Trustee and the TP.
While the Trustee can be a bank or trust company, or
other financial institutions, the TP is usually a person
close to the family (it could be a CPA, accountant, or
lawyer who is already the family consigliore).
The TP's powers can take any form, limited only by
the wishes of the Grantor(s) and their imagination.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
71

How Parents Keep Control
Technique #4:
Single Member LLCs.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
72

How Parents Keep Control
Technique #4: Single Member LLCs.
Relationship To Creditor Planning
Since LLCs commonly arise in a creditor
protection context, let us focus, for a
moment, on an often ignored aspect of
creditor protection planning.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
73

How Parents Keep Control
Know What Clients Fear:
Three Different Types Of Liability
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
74

How Parents Keep Control
Distinguish Three Different Types Of Asset Protection
Up – problem with the asset
gets to you
You
Your Entity
Valuable asset
#1
Valuable asset #2:
someone dies
The
decedent’s
family
wants to
sue you
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
75

How Parents Keep Control
Distinguish Three Different Types Of Asset Protection
Up – problem with the asset
gets to you
You
Your Entity
Valuable asset
#1
Valuable asset #2:
someone dies
But is
blocked by
your entity
from doing
so
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
76

How Parents Keep Control
Distinguish Three Different Types Of Asset Protection
Down – problem with you
get to the asset
You get into a car crash
which is your fault and
someone gets seriously injured
Your Entity
Valuable asset
#1
Valuable asset
#2
The
judgment
creditor
wants to
get your
assets
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
77

How Parents Keep Control
Distinguish Three Different Types Of Asset Protection
Down – problem with you
get to the asset You
Your Entity
Valuable asset
#1
Valuable asset
#2
But the judgment
creditor is blocked by
your entity
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
78

How Parents Keep Control
Distinguish Three Different Types Of Asset Protection
Collateral – problem with
one asset get to the other
You
Your Entity
Valuable asset #1:
someone dies
Valuable asset
#2
The decedent’s family
wants to get your
equity in
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
79

How Parents Keep Control
Distinguish Three Different Types Of Asset Protection
Collateral – problem with
one asset get to the other
You
Your Entity
LLC For Valuable
Asset #1
LLC For Valuable
Asset #2
But they are blocked
because each is in a
separate LLC
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
80

How Parents Keep Control
Problem With
Single Member LLCs.
In Bankruptcy
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
81

How Parents Keep Control
Nevada Single Member LLC
Bad (In re Ashley Albright1 and Olmstead2 (Florida 2010))
1. 2003 Bankr. LEXIS 291 (Bkrptcy. Colo. Case #01-11367 ABC, 4-4-2003).
2. 2010 WL 2518106 (June 24, 2010).
Client
Sole Manager
and
Member
Single Member
Nevada LLC
valuable assets
Asset Protection Planning: The Advanced Course
82
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com

How Parents Keep Control
Obvious Solution To The
Problem With
Single Member LLCs.
In Bankruptcy
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
83

How Parents Keep Control
Nevada Multi-Member LLC
Note the problem of doing this in California after January 1, 2014, which is why
we have switched to using limited partnerships.
Client
Manager
and
Member Single Member
Nevada
LLC
valuable assets
84
Children’s
Trust
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com

How Parents Keep Control
Technique #4: Variation 1
SMLLCs With An SSST.
The Grantor (Parent) Transfers To The
Irrevocable Trust All Of The Membership
Interests In A Single Member LLC (“SMLLC”)
In Which The Parent Is The Non-Member
Manager. (Or, The Trustee Contributes The
Assets Down To Such An SMLLC.)
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
85

How Parents Keep Control
Vanilla Structure
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
86
The first diagram is of a structure that you would set up for
a client in any state. The purpose is so that the client can directly
manage the assets of the trust without being reliant on the trustee.
Your client may well appreciate the fact that his or her sister or
brother agreed to act as trustee. However, your client doesn’t
want to bother the family member with having to sign escrow
papers when real estate is bought and sold, or with approving
stock transactions with the broker, or similar paperwork.
The danger is that too much control might be viewed by a
hostile third party as a way to ignore the trust, perhaps using an
alter ego attack.

How Parents Keep Control
Vanilla Structure
Trustee
Irrevocable
Trust For
Kids
Single member LLC
with $10,000,000 of
liquid assets
Dad
Non-member
manager
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
87

How Parents Keep Control
APT Structure
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
88
The second diagram is of a structure that you would set up for a
client in a state with favorable DAPT (domestic asset protection trust)
legislation. We use Nevada both because people in L.A. are comfortable
with Las Vegas and due to the superior Nevada law (next page).
Now you have Nevada trustee that does not want anything to do
with the trust assets, so your client wants to directly manage the trust
assets without bothering the family member who agreed to act as co-
trustee or distribution advisor.
Again, there is the danger is that too much control might be
viewed by a hostile third party as a way to ignore the trust, perhaps using
an alter ego attack.

How Parents Keep Control
Why In California We Use Nevada Law
Givner & Kaye,
A Professional Corporation
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89
1. People in L.A. are comfortable with Las Vegas both due to
proximity (less than 1 hour by air, 5 hours by car) and frequency of visits.
2. Nevada has the 2nd shortest statute of limitations on fraudulent
transfers in the country in states with good DAPT laws (Ohio has 6
months; Nevada’s is 2 years; tied with Hawaii; South Dakota and Utah are
next with 3 years; all the others, e.g., AK, DE, WY, etc., are 4 years).
3. Nevada has no exceptions to its fraudulent transfer laws. Even
Alaska has an exception for a divorcing spouse. Most states have
exceptions for child support and pre-existing torts.
4. Effective 10/1/11, the charging order limit is explicitly the sole
remedy, even for shareholders of corporations. Equitable remedies such
as constructive and resulting trusts and veil piercing are not available.

How Parents Keep Control
Nevada SSST With SMLLC
Three Alternatives For Trustee:
(i) a Nevada trust company;
(ii) a friend or relative in
Nevada; or
(iii) establish your own
unregulated trust
company.
Client
Sole Manager
(in the event of a personal
insolvency, the court appointed
trustee should not be able to
take over as manager)
Nevada Self-Settled
Spendthrift
Trust
Grantor/Creator/
Settlor/Trustor Trustee
Single Member
Nevada or Delaware
LLC
valuable assets
90
Layering
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com

How Parents Keep Control
Technique #4: Variation 2
SMLLC With An SSST And A PTC
(preview of the next technique).
In this structure the client establishes the client’s own
unregulated private trust company to be the trustee of the self-
settled spendthrift trust. See IRS Notice 2008-63 (July 11, 2008)
on when the use of a PTC will cause the value of the trust assets
to be included in a grantor’s estate under IRC Sections 2036(a)
or 2038(a), and other important issues.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
91

How Parents Keep Control
THE VERY BEST STRUCTURE.
Nevada
SSST
Client
Single Member
LLC
Client as
beneficiary
Non-member
manager Children’s
Trust
Nevada
Private Trust
Company
owns
trustee
trustee
92
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com

How Parents Keep Control
Technique #4 Variation #3:
Using A Partnership
To Own A Life Insurance Policy.
Instead Of Establishing The Typical ILIT (Irrevocable
Life Insurance Trust), The Parent Establishes (Or Uses An
Existing) FLP (Family Limited Partnership) To Own Life
Insurance On The Parent’s Life. Avoids Crummey Notice
Issues. Requires Other Assets For It To Be A “Real”
Partnership. Requires Minimization Of Parent’s Interest In
This Particular FLP To Minimize Amount Of Insurance
Proceeds Included In Parent’s Estate.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
93

How Parents Keep Control
Enterprises, L.P.
$1,000,000 in a securities account
and
$10,000,000 policy on Dad
2%
GP
8%
LPProperties,
Inc.
Heirs’ Trust
#2
90%
LP
Family
Trust
Heirs’
Trust #1
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
94

How Parents Keep Control
Technique #5: Private Trust Company.
Using Notice 2008-63, Mom and Dad set up their own
PTC. They can be the officers and the board of directors.
However, if the PTC is the trustee of their SSST, they cannot
be on the (i) discretionary distribution committee and (ii)
amendment committee. Otherwise, the trust’s assets will be
included in their estate.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
95

How Parents Keep Control
George E. Burns, Commissioner
Financial Institutions Division
Nevada Department of Business and Industry
2785 East Desert Inn Road, Suite 180
Las Vegas, NV 89121
Re: Givner Holdings, Inc.
Family Trust Company Notification
Dear Mr. Burns:
I am writing on behalf of Givner Holdings, Inc., a Nevada corporation (the “Company”), to notify
you of the Company’s intention to act as a non-licensed family trust company in the State of Nevada.
The Company intends to act as a “family trust company,” as that term is defined in Section 10 of
recently enacted Senate Bill No. 365, for the Givner family. The “designated relative” of the Company, as that
term is defined in Section 7 of Senate Bill No. 365, is Bruce Givner.
The Company warrants and represents that it does not: transact trust company business with;
propose to act as a fiduciary for; or solicit trust company business from, persons who are not family members.
Please provide me with written confirmation of your receipt of this letter and let me know if you
have any questions or require additional information regarding this matter.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
96

How Parents
Keep Control
Technique #5:
Private Trust
Company.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
97

How Parents Keep Control
The next three slides are the body of a February 25, 2010, e-
mail response which we received from a nice man in the
Department of Financial Institutions (1810-13th Street, Sacramento,
California 95811-7118). This was in response to a question about
whether we could set up an LLC to act as the trustee of an
irrevocable trust which holds life insurance policies on the lives of
Bruce and Kathy Givner for the benefit of our children, without the
LLC having to be licensed. That was one in a series of e-mails with
the nice gentleman (assistant general counsel).
Be clear: his response is not binding on the DFI. It was his
thoughts on that given day. He might change them later.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
98

How Parents Keep Control
The trust company laws of California are blunt and difficult
at the same time. Financial Code Section 107.5 provides, in
part, that "It shall be unlawful for an person, corporation, limited
liability company, partnership, firm, or any other form of business
entity allowed by law, to engage in or transact . . . trust business
within this state except by means of a corporation duly organized
for that purpose.“
Financial Code §106 defines "trust business" as "the
business of acting as executor, administrator, guardian or
conservator of estates, assignee, receiver, depositary or trustee
under the appoint of any court, or by any authority of any law of
this or any other state or of the United States, or as trustee for any
purpose permitted by law."
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
99

How Parents Keep Control
While the two sections taken together would appear to
preclude [Givner’s] proposal, that is not necessarily the case. The
DFI has in previous situations focused on what the Legislature
meant in §106 by the phrase "the business of." We have generally
held that the entity must be engaged in more than one transaction
(e.g., more than one executorship) with the intent to make a profit
to fall within the confines of being in "the business of" trust
business. This position is bolstered by the exception to
conducting intrastate business found in Corporations Code
§191(c)(8) (although we concede that not all trust activities may be
concluded in 180 days). (Also, the non-profit corporations laws of
this state allow for a non-profit corporation to act as trustee under
any trust incidental to the principal interests of the corporation.
(See Corporations Code §§5140(k), 7140(k), 9140(k).))
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
100

How Parents Keep Control
So, under our current interpretation of the law, if
an entity is going to conduct more than one activity that
would be considered "trust business" for profit (i.e., act
as trustee for more than one estate), then it may only
do so in the form of a corporation licensed by the
Department of Financial Institutions to conduct trust
business.
I hope this helps guide you to a decision.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
101

How Parents Keep Control
Children’s
Trust
Private
Trust
Company
Single member LLC
with $10,000,000 of
liquid assets
owns
trustee of
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
102

How Parents Keep Control
Maurits Cornelis Escher (June 17, 1898 – March 27, 1972)
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
103

How Parents Keep Control
Technique #6:
Grantor Trust Flip Switch.*
*We will not, today, address the fascinating question of whether a change from grantor trust status to complex
trust status (or the termination of grantor trust status) causes a recognition of gain when there is an installment
note outstanding. Similarly, the switch from complex trust status to grantor trust status may be fraught with
income tax problems. So before engineering a switch, the income tax issues must be addressed.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
104

How Parents Keep Control
The Conceptual Problem:
The Income Tax and the Transfer Taxes are
not In Pari Materia (from the same material - comparable).
As a result:
income tax “own” transfer tax “own”
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
105

How Parents Keep Control
Technique #6: Grantor Trust Flip Switch (cont’d #1).
For all clients, virtually all CPAs, and even most
estate planning lawyers, the concept of a trust which is
“owned” by the parent for income tax purposes but not
“owned” by the parent for estate tax purposes is nearly
impossible to understand. The real difficulty is picking
those powers which cause income tax ownership without
estate tax ownership.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
106

How Parents Keep Control
Technique #6: Grantor Trust Flip Switch.
Default Status: Grantor Trust
For wealthy clients the irrevocable trust for
the benefit of their children is automatically a
grantor trust – ignored as to the parents. This
way the parents pay the income tax on the trust’s
earnings, depleting the parents’ estate by the
income tax without that payment being
considered a gift.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
107

How Parents Keep Control
Technique #6:
Grantor Trust Flip Switch (cont’d #2).
There is no absolute agreement on which powers should be used for this purpose.
However, we use these two:
(i) Section 675(4)(c), the grantor’s “power to reacquire trust corpus by substituting
other property of an equivalent value” (problem with a trust created by husband and wife when
one of them dies) and
(ii) Section 677(a)(3) the trustee’s power to apply “income without the approval or
consent of any adverse party” “to the payment of premiums on policies of insurance on the life
of the grantor or the grantor’s spouse…”
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
108

How Parents Keep Control
Technique #6: Grantor Trust Flip Switch (cont’d)
Para. 2.3. Grantor Trust Rules. The following
subparagraphs give Grantor a power which will cause the Trust to be
treated as a so-called “Grantor Trust” for income tax purposes. One of
the following subparagraphs gives the Trustee a power which will cause
the Trust to be treated as a so-called “Grantor Trust” for income tax
purposes. In other words, “the grantor…shall be treated as the owner of
[the] trust…” However, these paragraphs do not cause the Trust’s assets
to be included in Grantor’s estate. If any trust property is included in
Grantor’s gross estate as finally determined for Federal estate tax
purposes under any IRC provision, then an amount equal to the taxes
attributable to that inclusion shall be distributed to Grantor’s estate, and
each Trust beneficiary’s Trust interest shall be reduced proportionately.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
109

How Parents Keep Control
Technique #6: Grantor Trust Flip Switch (cont’d).
Para. 2.3.1. Reacquire Trust Corpus. Grantor may
reacquire the trust corpus by substituting other property of an
equivalent value. This is intended to make this Trust a Grantor
Trust for income tax purposes. This power (i) is not held in a
fiduciary capacity, and (ii) may be exercised without the consent
of any fiduciary of this Trust. No claim of fiduciary duty may be
asserted as a defense against the exercise of this power.
Grantor shall have the right to release this power at any time.
The Trustee shall have the authority to re-grant this power to
Grantor at any time after it is released.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
110

How Parents Keep Control
Technique #6: Grantor Trust Flip Switch (cont’d).
Para. 2.3.2. Restriction. Grantor may not reacquire the
Trust corpus to the extent the Trust corpus consists of a
residence that was contributed to this Trust from Grantor’s
qualified personal residence trust. In other words, this power to
reacquire Trust corpus may not be used to avoid the Reg.
§25.2702-5(c)(9) prohibition on the sale or transfer of the
residence to Grantor or a grantor trust. The Trustee is also
prohibited from selling or transferring that former residence of
Grantor to Grantor, Grantor's spouse, or an entity controlled by
Grantor or Grantor's spouse.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
111

How Parents Keep Control
Technique #6:
Grantor Trust Flip Switch (cont’d #6).
Para. 2.3.3. Right To Apply Trust Income.
Trustee shall have the right to apply the income of the
trust corpus to the payment of premiums on a policy or
policies of insurance on Grantor’s life. The Trustee
shall have the right to terminate this power at any
time. The Trustee shall have the authority to revive
this power after it has been terminated.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
112

How Parents Keep Control
Technique #6:
Grantor Trust Flip Switch (cont’d #7).
Para. 2.3.4. Trustee’s Discretion. The Trustee may (i)
terminate, or (ii) apply to a lineal descendant of Grantor,
either or both of the preceding powers which make this a
grantor trust. The Trustee shall have the authority to revive
either or both of these powers after either or both has been
terminated. Also, the Trustee may reconfigure this Trust as
one or more electing small business trusts or qualified
subchapter S trusts. See Article 7.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
113

How Parents Keep Control
Technique #6:
Grantor Trust Flip Switch (cont’d #8).
Para. 2.3.5. Support Obligation. Grantor intends
this rule to apply during periods in which the Trustee does
not wish the trust to be a grantor trust for income tax
purposes. However, the preceding sentence is a guide
for the Trustee’s exercise of discretion. Trust distributions
may not be used to discharge a support obligation of the
parents of the recipient of the distribution.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
114

How Parents Keep Control
Technique #7:
Powers Of Appointment.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
115

How Parents Keep Control
Section 2041 Powers of Appointment.
(a) In general.
The value of the gross estate shall include the value of all property—
….
(2) Powers created after October 21, 1942.
To the extent of any property with respect to which the decedent has at the time
of his death a general power of appointment created after October 21, 1942, or with
respect to which the decedent has at any time exercised or released such a power of
appointment by a disposition which is of such nature that if it were a transfer of property
owned by the decedent, such property would be includible in the decedent's gross estate
under sections 2035 - 2038, inclusive. For purposes of this paragraph (2), the power of
appointment shall be considered to exist on the date of the decedent's death even though
the exercise of the power is subject to a precedent giving of notice or even though the
exercise of the power takes effect only on the expiration of a stated period after its exercise,
whether or not on or before the date of the decedent's death notice has been given or the
power has been exercised.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
116

How Parents Keep Control
Sample Trust Language
5.5.1. Appointment Power
Upon a beneficiary’s death, the Trustee shall distribute the
undistributed balance of that beneficiary’s Trust to the beneficiary’s
spouse, or to one or more of the beneficiary’s issue then living, and on
the terms and conditions, either outright or in trust, as that beneficiary
shall appoint. The beneficiary shall exercise this by (i) an acknowledged
instrument specifically referring to and exercising this continuing
withdrawal power and delivered to the Trustee; or (ii) a Will specifically
referring to and exercising this appointment power.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
117

How Parents Keep Control
Technique #8:
Trustee’s Decanting Powers.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
118

How Parents Keep Control
Trustee’s “decanting” powers.
New York was the first state to enact decanting legislation. Although
amended since its original enactment in 1992, it essentially allows a trustee who
has authority to invade the trust corpus for a beneficiary to pay the corpus over to
another trust for the beneficiary. See N.Y.E.P.T.L. section 10-6.6. Legislation
somewhat similar to that in New York now has been enacted in Alaska, Arizona,
Delaware, Florida, Nevada, New Hampshire, North Carolina, South Dakota, and
Tennessee, which appears to reflect an acknowledgment of such a statute's utility.
Alaska Stat. section 13.36.157; Ariz. Rev. Stat. section 14-10819; Del. Code Ann.
tit. 12, section 3528; Fla. Stat. section 736.04117; Nev. Rev. Stat. section 163.37;
N.H. Rev. Stat. section 564-B:4-418; N.C. Gen. Stat. section 36C-8-816.1; S.D.
Laws sections 55-2-15 to 55-2-21; Tenn. Code Ann. section 35-15-816. Also, with
heightened appreciation for the authority to distribute to new trusts, many
practitioners now include decanting provisions in their trust forms.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
119

How Parents Keep Control
The goals or purposes of using decanting include:
(1) Addressing changed circumstances, such as changes in applicable fiduciary or tax law or changes in
family circumstances or dynamics.
(2) Protecting the tax treatment of a trust.
(3) Modifying administrative provisions, e.g., restrictions on investment powers or to create a directed trust.
(4) Granting a beneficiary a power of appointment, presently exercisable or otherwise.
(5) Reducing administrative costs.
(6) Altering trusteeship provisions such as the identity or manner of appointing fiduciaries.
(7) Extending the termination date of a trust. (A large corporate trustee will probably refuse to accept a
trust the purpose of which is to accomplish this.)
(8) Converting a nongrantor trust to a grantor trust or the reverse.
(9) Changing a trust's governing law.
(10) Dividing trust property to create separate trusts.
(11) Reducing potential liability.
(12) Converting a trust into a supplemental needs trust to permit a beneficiary to qualify for certain
governmental benefits.
(13) Making trust interests spendthrift or the reverse.
(14) Correcting a drafting error without the necessity of going to court.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
120

How Parents Keep Control
Technique #15:
The Bar Mitzvah DVD.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
121

How Parents Keep Control
The “Bar Mitzvah” DVD
The ideas behind this:
1. With extended distribution provisions, the trustees – 20 years
from now – will be asking themselves “what would Joe have wanted us
to do in this situation?”
2. Some language is best left out of a trust. Some intent is not
even well written as “precatory” language.
3. Maybe you will need one DVD for the trustees; another one for
the board of directors of the business; and yet another for your great-
grandchildren. After all, how much are your great-grandchildren likely to
know about you?
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
122

How Parents Keep Control
The “Bar Mitzvah” DVD
+
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
123

How Parents Keep Control
The “Bar Mitzvah” DVD
1. Write and re-write the script, so you are clear on the points
you wish to cover. Have someone else review and edit the script.
For wealthy clients, hire an independent writer, e.g., someone who
would write a biography of your client.
2. No more than 40 minutes.
3. Professional taping and editing if possible, e.g., $1,500.
4. Store on the web.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
124

How Parents Keep Control
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
125
[sample – first page]
Irrevocable Trust Maintenance Program
Each service is performed by means of a phone call from our office to you twice each year. The
annual fee is eight hundred dollars ($850) per year. Exceptions are noted.
Service Fees
TRUST INSTRUMENT
Still happy with the:
specific bequests, if any?
beneficiaries?
manner of distribution to the beneficiaries?
contingent remainder beneficiaries?
trustees? successor trustees?
protectors?
grantor trust status?
If the answer to any question is “no,” can the change be made by:
grantors (you) under the trust instrument?
protectors under the trust instrument?
Beneficiaries under the trust instrument?
If so, we prepare the documents.
If not, is a Probate Court petition appropriate?
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
As incurred

How Parents Keep Control
Advice From A Parent With Two Perfect Children:
The Final Technique:
When All Else Fails,
A Good Whipping
Will Keep A Child In Line
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
126

How Parents Keep Control
As a result of these whippings, I spoiled my children. But they are not spoiled.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
127

How Parents Keep Control
Questions and Answers
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
128