Wills, Trusts & Estates Prof Blog

IRS Does Not Include Trust Decanting Rules In Guidance Plan

Recently, tax analyst Marie Sapirie has published an article highlighting the fact that there are no trust decanting rules in the 2012 and 2013 priority guidance plan. According to attorney advisor of the Treasury Office of Tax Legislative Counsel, Catherine Hughes, the omission of the rules was a consequence of the IRS's failure to publish the trust decanting rules in time for the priority guidance plan.  

See Kelly Humke, Tax Notes Article by Marie Sapirie: "ABA Meeting: Trust Decanting Rules Still Getting IRS Attention", Wealthstrategiesjournal.com, May 14, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Mother of Heirs to the Doris Duke Fortune Ordered to Explain her Big Spending

Daisha Inman has allegedly blown over $1 million of her children’s $60 million inheritance since 2010. 

Daisha Inman was married to Walker Inman Jr., the nephew of tobacco heiress Doris Duke.  Following his death, the Duke fortune is now held in trust for their twin children. 

Inman “has been ordered to appear in court next month to answer charges that she’s treated their trust funds as a personal piggy bank.”  Inman asserts she has never touched their trust funds and points the finger towards the Citibank and J.P. Morgan trustees who administer her children’s accounts.

See Julia Marsh, Mom of Twin Duke Fortune Heirs Ordered to Court after Allegedly Blowing $1M of their Inheritance, New York Post, May 8, 2013.

24th Annual Estate Planning and Probate Drafting Course

The State Bar of Texas is presenting the 24th Annual Estate Planning and Probate Drafting Course in Houston, TX on October 24-25, 2013.  The course provides 13 hours of MCLE credit, including 2 hours of ethics.  A description of the course is below:

Course Highlights

• Decanting panel
• Drafting for Trust Modifications and Private Letter Ruling Requests
• Pretrial Drafting for Will Contests, Guardianship Disputes and Fiduciary Litigation
• Drafting Fiduciary Powers for Trust Protectors and Independent Trustees
• Drafting for Marital Deduction Planning in 2013

Course Amenities

• Coffee and breakfast provided each morning
• Lunch provided both days
• Complimentary wireless Internet connection in the meeting room
• Convenient access to electrical connections - bring your laptop!
• Networking Social on Thursday night

For those that can’t make it to the live course, a video replay will be shown in Dallas, TX on November 21-22, 2013.

Article About Using Remainder Trusts For Transfers

Michael Duffy (Goldman Sachs Strategic Wealth Advisory Team Member, Atlanta, Georgia) recently published an article entitled, Using Remainder Purchase Marital Trusts to Transfer Works of Art, Probate & Property, May /Jun., 2013 at 60. Provided below is the introduction to the article: 

Art collectors routinely ask their tax advisors about strategies that will allow them to make inter vivos completed gifts of some or all of their artwork to remove the art (and any future appreciation) from their taxable estates while at the same time permitting them to retain possession of the art until a later date-which they most often describe as "until the death of the surviving spouse."

The main obstacle to engaging in such strategies is the IRS's ability to include the transferred works in a decedent-collector's taxable estate by invoking IRC Sec.2036(a), which requires inclusion in the gross estate if the decedent-collector retained possession and enjoyment of the art and there was no bona fide sale for adequate and full consideration in money or money's worth. 

Hamel v. Hamel Examines the Interplay Between Broad and Specific Trust Provisions

The Kansas Supreme Court recently interpreted a trust instrument where the broad powers granted to a trustee conflicted with a specific trust provision.

Arthur L. Hamel gave his trustees broad power to control and administer trust property, but included a specific provision in the trust instrument concerning farmland held in the trust.  Based upon an appraisal by the trustees, Dennis Hamel was to have a three-year option to purchase the farmland following Arthur’s death.  Dennis agreed to buy the farmland for $244,000 to be paid over six years.

Despite the broad powers granted to the trustees, the Kansas Supreme Court “determined that the trustees lacked authority to sell the farm to Dennis under the terms of this contract for deed.”  Arthur clearly intended for the farmland to be disposed of within three years.  Therefore, the six-year contract violated the specific provision found in the trust instrument.

See Luke Lantta, When the General Powers Granted to a Trustee Conflict with a Specific Trust Provision, Bryan Cave Fiduciary Litigation, May 10, 2013.

Ariel Castro Won’t Escape Child Support

The Cleveland kidnapper is legally required to pay child support after a paternity test revealed he fathered the daughter of one of his captives.

Even if Castro had set up a domestic asset protection trust (DAPT), under Ohio’s new “family-friendly” statute, child support is an exception creditor allowed to access the trust.  However, if Castro had set up a DAPT in a different jurisdiction, such as Nevada or Utah, child support is not afforded special status and Castro may have been off the hook. 

Ohio clearly won’t be letting Castro profit from his crimes in any way.  His estate will likely find its way to the victims, whether it be by an assignment of assets arising out of a 2004 written confession, garnishment of property arising out a civil suit, or perhaps criminal restitution.  The victim that now has to raise his child may receive preferential treatment when it comes to the division of his assets.

See Scott Martin, Ohio’s New Asset Protection Law Won’t Shield Cleveland Kidnapper, The Trust Advisor, May 12, 2013.

Bankruptcy Appellate Panel Takes A Stand Against Fraud

The Bankruptcy Appellate Panel of the U.S. Tenth Circuit Court of Appeals made it clear that committing fraud to avoid making payments to creditors will not be tolerated. Debtor owned a failing printing company and a substantial portion of a real estate company. Debtor also owed millions in loans and was trying to avoid paying his creditor on the personal guarantee by transferring his assets to his wife who then moved the assets to an offshore trust. Following the transfer the debtor filed for voluntary bankruptcy relief.

In re Kendall, the court held that the transaction had seven of the eleven fraud indicators. The court mentions that looking at the totality of the circumstances the transaction was fraudulent and affirmed the lower court ruling. In addition to the fraud indicators, the court mentions the significance of the location of the offshore trust. The trust is located in a place known for asset protection.   

See Jay Adkisson, Tenth Circuit Affirms Fraudulent Transfer Judgment Against Debtor's Wife and Her Cook Islands Trust , Forbes, May 12, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Avoiding the Kiddie Tax

The “kiddie tax” prevents high-net-worth individuals from avoiding taxes by shifting investment assets into their children’s names.  In 2013, “children under age 20 and full time students living with the parents will pay income taxes at the parents highest marginal tax rate on all unearned income above $2,000.”  But there are methods of avoiding the kiddie tax or at least minimizing it.

The easiest way to avoid the kiddie tax is to ensure that the unearned income the child receives does not exceed $2,000.  This can be accomplished by limiting gifts to those assets that are non-interest bearing or that pay no dividends, such as raw land.

Another way to avoid the kiddie tax is to create a 529 savings account.  If the assets are going to be used for qualified educational expenses, all gains and income in a 529 savings account are tax-deferred and then tax-free.

Other options include U.S. savings bonds and tax-deferred annuities.  No matter what method is used to avoid the kiddie tax, high-net-worth individuals should always be aware of the risk of transferring assets to children and strongly consider the use of a trust to control the flow of money.

See John Napolitano, Wealth Planning Across the Ages, WealthManagement.com, May 3, 2013.

Mother of Duke Heirs Ordered Back To Court

As I have previously discussed, the mother of Duke heirs was suspected of dating a convicted child molester that was attempting to take some of her children's trust funds. Now, a court has ordered Daisha Inman, "to appear in court next month to answer charges that she's treated their trust funds as a personal piggy bank." Court records indicate that Ms. Inman has already spent about $1 Million worth of the trust, which does not include direct payments made to cover the children's expenses. This would include items such as their school tuition. Recently, Ms. Inman has also requested big sums of money to purchase a ranch and take a trip to Las Vegas.

Judge Nora Anderson has ordered to Ms. Inman to appear to defend why she should be required to provide receipts for the her spending to the corporate trustees. When the trustees asked Ms. Inman to "account for ATM withdrawals, Inman has been hostile and invoked the right of privacy." In the past three years, she has moved her children to three different states and is currently living within a hotel in Utah. Her room and board is set to run about $120,000 a month. The court has ordered her to appear on June 28, 2013.

See Julia Marsh, Mom of Twin Duke Fortune Heirs Ordered To Court After Allegedly Blowing $1M of Their Inheritance, New York Post, May 8, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Invitation to a Primer for Attorneys & Planners on Purposeful Trusts & Gifts in Philadelphia on June 20, 2013

The following announcement is posted as a courtesy to the Purposeful Planning Institute:

Are you looking for ways to better assist your clients in transitioning their wealth—not just their financial wealth but all of those other dimensions of a family’s wealth? Have you noticed how energized clients get when they discover the power of an ethical will, a family legacy letter, or an expression of donor intent? Have you considered the possibility there might be a “Better Way” to create wills and trusts than the standard forms and boilerplate used today? What if there was a way to create legal instruments which not only satisfy what the Third Restatement of Trusts describes as a best practice for 21st century will and trust drafting but to have your clients give testimonials like this about the outcomes of their planning experience:

When I sat down in the attorney’s conference room and read the documents my husband and I had created with the help of our planning team, I broke into tears. These were tears of joy. I never knew until that moment that it was possible for my yet unborn grandchildren to hear my voice through my will and to know how much we loved them and how much we wanted to make sure our financial wealth would become a positive influence in their lives—A female client, Denver, Colorado

The Primer on Purposeful Trusts & Gifts Workshop on June 20th in Philadelphia is a ½ day interactive and intensive workshop designed for 10 to 16 professionals who assist clients in the design, drafting or administration of trusts.

This workshop will teach you simple but effective ways we can make sure that the will and trust documents we produce for our clients will help create the most positive impact possible in the lives of beneficiaries and inheritors. This experience will arm you with stories, knowledge and processes which will not only transform the way you think about the design and drafting of trusts and wills but HOW you and your clients work together to produce those estate planning documents.

Workshop participants will be eligible for 3.5 - 4 hours of continuing professional education credits. For more information on the Primer on Purposeful Trusts & Gifts and other workshops hosted by the Purposeful Planning Institute please visit www.purposefulplanninginstitute.com/primer or contact us at info@purposefulplanninginstitute.com.

Article on the Ohio Legacy Trust Act

Kevin R. McKinnis (Associate Editor, Cleveland State Law Review) recently published an article entitled, The Ohio Legacy Trust Act: The Good, the Bad and the Poor Man's Prenuptial: An Analysis of What Asset Protection Trusts Will Mean For Ohio, (March 18, 2013), The Cleveland State Law Review, Forthcoming. Provided below is the abstract from SSRN:

This law review note, forthcoming in The Cleveland State Law Review, provides an in-depth analysis of the Ohio Legacy Trust Act and explores the potential effects the Act will have on Ohio. This note also explores the requirements to establish a Legacy Trust and the potential federal income and estate tax consequences. In the latter portion of the note, the possible ethical implications for Ohio attorneys is examined, as well as the arguments creditors will make when attempting to void a disposition to a Legacy Trust.

Declaratory Judgments Unlikely to Protect DAPT from Creditors

A Domestic Asset Protection Trust (DAPT) allows a debtor to protect his assets from creditors.  However, these self-settled irrevocable spendthrift trusts are only allowed in a few states.  Because the debtor’s residence typically decides the applicable state law, debtors living in non-DAPT states probably will not gain DAPT protection, unless the debtor moves to a DAPT state before the creditor enforces a judgment. 

One theory beginning to gain acceptance is that a trustee in a DAPT state can try to obtain a declaratory judgment in the DAPT state before a creditor can execute on property in a non-DAPT state.  The non-DAPT state court would then be forced to honor the judgment under the Full Faith and Credit Clause.

This theory fails because courts in the DAPT state must have personal jurisdiction over the creditor to enter a declaratory judgment against the creditor.  Even if the court finds that the creditor has engaged in significant action in the DAPT state and personal jurisdiction does exist, the creditor could still remove the action to federal court and invoke the Federal Anti-Injunction Act, 28 U.S.C. § 2283.  Therefore, it is not likely that a DAPT will effectively protect real estate in a non-DAPT state from creditors.

See Jay Adkisson, Will Declaratory Judgment Actions Be the Savior of Domestic Asset Protection Trusts?  Probably Not., Forbes, Apr. 27, 2013.

Updating Estate Planning Documents

Often people will draft their documents and then forget about them, but this can be a bad idea and wreak havoc on your health and your family's wealth. 

Recently a Consumer Reports survey indicated the 86% of respondents who had wills or other estate documents had not updated them within the past five years. As circumstances change throughout the course of a lifetime, your documents should be updated accordingly. The Wall Street Journal lists the following key documents to evaluate for updates: 

• Wills
• Trusts
• Health-care directives
• Financial power of attorney

See Elizabeth O'Brien, Make Your Heirs Happy: Update Your Will, The Wall Street Journal, May 8, 2013. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Tips To Help Achieve A Negative Tax Result

As the tax rules change financial, advisors are responsible for weighing the different tax implications of their advice. Recently, there has been a change of conventional thinking regarding trust strategy. It was believed that assets should be held in a bypass trust. The rational behind the bypass trust was to have the assets grow out of the estate. However, with higher capital gains taxes the opposite might be more accurate. Many people say that equities should be held in the spouse's name and bonds should be put in a bypass trust. However, the yield for bonds is flat and interest rates are rising. As a result, the increase in rates would have a negative impact on bonds.

In the current economy, many wealthy people have turned to fixed-income substitutes such as master limited partnerships in oil, or sovereign debt funds. A person with these substitutes might want to consider holding them in a bypass trust. Nonetheless, the trustee making this decision would still face challenges. Trustees owe a duty to all beneficiaries not just the spouse. Additionally, provisions in the will are not enough to offer a fiduciary only investing in these asset types.It will be up to the financial advisor to alleviate the negative income tax result. According to financial advisor Martin Shenkmen, any combination of the following might help with that goal:

1. Modify asset location decisions to favor investments generating cash flow in an individual client's name to cover income tax costs, or non-income-producing assets (such as growth stocks) in the trust, to lessen the income tax burdens added by the trust.
2. Favor tax-advantaged investments, such as tax-exempt bonds and insurance products inside the trust. If life insurance is to be used, be certain that the trust is suitable for holding the insurance since it may not have been designed with that purpose in mind.
3. Harvest gains and losses more aggressively and coordinate planning to reduce the income tax burden.

See Martin Shenkman, New Take on Trust Strategy, financialplanning.com, May 1, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

CLE on Trust Modifications by Agreement

The Illinois State Bar Association Trusts & Estates Section is offering a 1.5 MCLE Hour webcast entitled, Virtual Representations: Trusts Modifications by Agreement, on Thursday, May 30, 2013 from 12:30 -1:30 pm. Below is a description and highlights of the event as provided by the Illinois State Bar Association: 

The Illinois virtual representation statute allows a trustee and certain beneficiaries to modify an irrevocable trust by nonjudicial agreement without the burden and expense of going to court. Join us via the Internet from the comfort of your home or office for this live webcast to learn what changes can be made by virtual representation agreements, whose consent is required, and the best practices in drafting and implementing virtual representation agreements.

Texas Supreme Court Ruled in Favor of Enforcing Arbitration Clause

Recently, the Texas Supreme Court ruled that state policy favors enforcing written commitments to arbitration.  Andrew Reitz created a self-declarating trust in 2000 choosing his two sons as the designated beneficiaries. Upon Andrew’s death his attorney, Hal Rachel was the new trustee. In 2009, beneficiary John Reitz, sued successor trustee Rachel for not providing an accounting, and misappropriating trusts assets. Rachel denied the accusations and moved to enact the arbitration clause in the trust.

In Rachel v. Reitz, the court held that an arbitration clause in a trust was enforceable. The court reasoned that the settlor’s intent was to attach an arbitration condition on his gifts, which is permissible. Additionally, the Texas Arbitration Act requires written agreements with arbitration clauses to be enforced. Moreover, the beneficiaries have accepted the benefits and should be compelled to comply with the other clauses in the agreement. 

See Rachel v. Reitz, NO.11-0708, (Tex.2013).

Special thanks to J. Barrett Shipp (The Law Office of J. Barrett Shipp, San Antonio, Texas) for bringing this article to my attention.

Capacity for Lifetime and Estate Planning

Clients that speak to estate planning attorneys often receive a "package" of estate planning documents, including a will, a trust, a health care proxy, a durable power of attorney, and an advance directive. However, many attorneys fail to grasp the fact that these documents require different levels of capacity to ensure their validity or they choose to ignore the distinctions. One possible solution to this to have a uniform test for capacity when attorneys draft a package for their clients.

See Robert Whitman, Capacity For Lifetime and Estate Planning, 117 Penn St. L. Rev. 1061 (2013).

Special thanks to Katherine Pearson (Professor of Law, Penn State University - The Dickinson School of Law) for bringing this article to my attention.

Article on Altering the Current Coogan Law To Protect Children

Danielle Ayalon (J.D. Candidate 2013, University of California, Hastings College of the Law) recently published a student comment entitled, Minor Changes Altering Coogan Law To Better Protect Children Working In Entertainment, 35 Hastings Comm. & Ent. L.J. 353 (Winter 2013). Provided below is the introduction to her article:

It’s a story heard time and again. A child, once famous, now broke. Fame, money, and youth equal problems: Michael Jackson, Gary Coleman, Macaulay Culkin, Corey Haim, Shirley Temple. The list goes on and on: Children whose parents forgot that they are supposed to protect their children--emotionally and financially. When children earn substantial amounts of money, parents have something to gain. They frequently manage their children’s money, and with the desire for personal gain, they face an enormous temptation to disregard their fiduciary responsibilities. To protect children against these potential problems caused by their parents, the California legislature has adopted a statutory scheme known as Coogan Law.

Coogan Law is a popular name for sections 6750 through 6753 of the California Family Code. Before the enactment of Coogan Law, common law did not help ease the financial tension between parent and child because a minor’s earnings belong to his or her parents. Children were at the mercy of their parents, who often mismanaged the money earned by their children. As Marc Staenberg and Daniel Stuart point out, “instances of financial exploitation of child performers by their own parents cr[ied] out for legislative intervention.”

Coogan Law provides statutory authority designating income earned by a minor under an entertainment contract as the minor’s property, rather than the property of the minor’s parents. These statutes were first enacted in 1939, substantially revised in 2000, and subsequently amended in 2004. But despite these ongoing efforts to provide financial protection, the adverse interests of parents and their children persist. The concern that many child entertainers are not yet adequately protected invites close scrutiny of the law to assess whether changes are still required to assure children in the entertainment business have optimal protection. 

This note examines the current Coogan Law and proposes changes to afford greater protection to children working under entertainment contracts. Part II of this note explains the history of Coogan Law from its inception to its most recent revision. Part III examines the current law and its loopholes: (1) the problems associated with court approval; (2) the inadequacy of the fifteen-percent requirement; (3) the inherent problems with parents as trustees; and (4) the statutory termination of the trust at the age of majority. Finally, part IV of this note proposes changes to the existing laws, aimed at curtailing each of the problems above and ultimately increasing the financial protection available to children working as performers in the entertainment industry.

Article on the Oregon Trust Deed Act

Joseph L. Dunne (Attorney, Vial Fotheringham, LLP) recently published his article entitled, Enforcing the Oregon Trust Deed Act, 49 Willamette L. Rev. 77 (2012).  The introduction to the article is available below:

In the real estate world, the years leading up to the 2008 financial crisis were characterized by massive financial irresponsibility exacerbated by a regulation vacuum. The nation's biggest financial institutions securitized millions of loosely underwritten home loans into mortgaged-backed securities and sold them to unknowing investors. The result, now widely recognized, was the overnight collapse of AAA-rated portfolios collateralized with toxic subprime loans. As of March 2012, nearly 20% of all Oregon homeowners were under water on their mortgages.

For most of the last five decades, real estate lenders have diligently complied with Oregon's statutory requirements for nonjudicial foreclosure. Traditionally, every time a home loan was sold on the secondary mortgage market, lenders recorded a deed of trust assignment in the local county records.  This practice guaranteed a complete legal chain of title at the time of foreclosure - making nonjudicial foreclosure a quick, reliable enforcement method without the need for judicial oversight. Oregon's nonjudicial foreclosure regime theoretically encourages lending to less-qualified credit applicants by ensuring a more cost-effective remedy upon default. Since their creation in 1959, nonjudicial foreclosures have been the predominant method for foreclosing real property in Oregon.

Widespread changes in mortgage banking practices during the housing boom undercut this once-reliable foreclosure method. Once mortgage bankers and Wall Street financiers realized the enormous profit potential in the secondary market for home loans, mortgage securitization by private investment banks intensified. As the market for home loans burgeoned and Americans increasingly signed up for home ownership, the mortgage banking industry collectively decided the decades-old practice of recording assignments each time a loan was sold was too expensive and paperwork intensive. They developed an electronic database named "Mortgage Electronic Registration Systems, Inc." (MERS) to save time and money in the securitization process.  An estimated 60% of all current U.S. home mortgages were sold on the secondary market using MERS, but as housing prices continued to skyrocket the legal issues surrounding MERS and mortgage securitization remained unnoticed. The eventual collapse of the housing bubble exposed the legal problems with MERS and mortgage securitization. Mortgage lenders soon found themselves in the middle of a foreclosure crisis.

The Oregon Trust Deed Act (OTDA) requires lenders to record all deed of trust assignments before initiating nonjudicial foreclosures. Lenders have difficulty complying with this requirement because of their dependence on the MERS private recording system. Over the last several years, an increasing number of Oregon homeowners have challenged the legality of their pending nonjudicial foreclosures. Their claims for wrongful foreclosure stem from two basic arguments: (1) MERS cannot be a beneficiary under a deed of trust in Oregon because MERS does not meet the statutory definition of a beneficiary found at section 86.705(2) of the Oregon Revised Statutes, and (2) unrecorded assignments of their deed of trust prohibit the nonjudicial foreclosure remedy under section 86.735(1).

These issues have divided circuit and district court judges in Oregon, resulting in a number of conflicting opinions. On April 6, 2012, Federal District Court Chief Judge Ann Aiken certified four questions to the Oregon Supreme Court stemming from four wrongful foreclosure cases pending before her Court. On July 18, 2012, the Oregon Court of Appeals ruled against MERS in Niday v. GMAC Mortgage, LLC, finding that MERS does not meet the statutory definition of a beneficiary, and cannot be used to circumvent the OTDA recording requirement. The following day, the Oregon Supreme Court accepted the four certified questions from the District Court. Oral arguments are currently scheduled for January 8, 2013, although a final decision may not be rendered until the following summer. Until then, in the wake of Niday and recent legislation requiring pre-foreclosure mediation, lenders appear reluctant to pursue any nonjudicial foreclosures in Oregon.  For the time being, the entire foreclosure industry in Oregon has been forced to switch to judicial foreclosures as the state's High Court is now poised to weigh in on Oregon's nonjudicial process and the legislature scrambles to come up with a solution.

This article explains how the use of MERS as a named beneficiary violates the procedural requirements for foreclosure under the Oregon Trust Deed Act. This article further examines the implications of MERS's inability to serve as the beneficiary, concluding that, although MERS cannot be a beneficiary, MERS may likely serve as an agent of the initial and successive beneficiaries. In its agency capacity, MERS and its principals may comply with Oregon's procedures for nonjudicial foreclosure by recording all assignments of the deed of trust prior to initiating nonjudicial foreclosures.

Bad Planning the FAPT Case

As I have previously discussed, problems have emerged for Arline Grant, whose husband established two Foreign Asset Protection Trusts to shield their assets from creditors. These trusts are usually established with a foreign trustee for the benefit of a United States grantor and their family members. Typically within this scheme, the trustee has discretion over the distributions that it gives to the beneficiaries. The grantor of the trust, however, usually retains the discretion to alter the trustee. This is usually how the grantor retains control over the trust. Current events have shown us that this scheme might lead to some unfortunate consequences. These consequences are a direct result of poor estate planning.

In United States v. Grant, a federal district court in the Southern District of Florida has ordered Arline Grant to exercise her authority to alter the trustee in this case. Before the court order, the trustee was a foreign corporation and therefore outside of the jurisdiction of the federal courts. The court has ordered her to replace the foreign trustee with a U.S. trustee to ensure that the trust would be within the reach of the jurisdiction of the courts. Now, the assets of the trust are reachable by the courts, which was contrary to the whole purpose of creating the trust. There are two points that should be taken away from this case. First, it might have been a better idea for the trust to limit who can be replaced as the trustee based on jurisdiction limitations. Second, it is never a good idea place assets that are outside the reach of the IRS. Often times, this can lead to criminal liability.

See Charles Rubin, Bad Planning In Foreign Asset Protection Trust Scenario, Rubin On Tax, Apr. 26, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.