Florida Revocable Trust Debate – Separate, Tbe Or Jest – What Is Best?

FLORIDA REVOCABLE TRUST DEBATE – SEPARATE, TBE OR JEST – WHAT IS BEST?

A Gassman, Crotty & Denicolo, P.A. Webinar Presentation

Thursday, October 24, 2019 – 12:30-1:00 p.m. EST (30 minutes)

Christopher Denicolo [email protected] Upcoming Webinars

Friday, November 7, 2019 12:30 PM – 1:00 PM ET

Ken Crotty and Michael Lehmann

Noncash Charitable Giving – Part I

Friday, November 8, 2019 3:00 PM - 4:30 PM ET

Alan Gassman and Brandon Ketron

Creative Trust Planning to Save Taxes Under Section 199A And Otherwise

Friday, November 14, 2019 12:30 PM – 1:00 PM ET

Ken Crotty and Michael Lehmann

Noncash Charitable Giving – Part II

Wednesday, November 20, 2019 3:00 PM - 4:30 PM ET

Alan S. Gassman and Christopher J. Denicolo

Estate and Trust Planning with S Corporations After TRA 2017 - And Recent Development

Thursday, November 21, 2019 3:00 PM - 4:30 PM ET

Alan Gassman, Ken Crotty and Christopher Denicolo

Dynamic Planning with Irrevocable Trusts After Tax Relief Act of 2017

Friday, November 22, 2019 3:00 PM - 4:30 PM ET

Alan Gassman

Planning With APT's After Resnin and Cleopatra, and Other Planning Opportunities and Developments--Let My Assets Go!

2019 2020-2025 After 2025

Annual Exclusion Gifts $15,000 (as adjusted for $15,000 $15,000 (as adjusted (Don’t Count at All) inflation) for inflation) Tuition and Medical Direct Unlimited Same Same Payment Exemption

$11,400,000 (plus Back to $5,600,000 (as Lifetime Exemption $11,400,000 inflation) adjusted for inflation)

$11,400,000 $11,400,000 (plus Estate Tax Exemption Same as above inflation)

Estate Tax Rate 40% 40% 40%

Discounts and Installment Available Appear to be available. Same as 2020-2025 Sales/GRAT’s, etc.

Portability of First Dying Yes Yes Yes Spouse’s Exemption

*** Note that exclusion increase does not apply for Non Resident Aliens or future or already existing Qualified Domestic Trusts (QDOT’s) established for Non Resident Alien spouses. They still are subject to a $60,000 estate tax exclusion level for assets subject to US estate tax and need planning as much as ever! [email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 8 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Traditional Wealthy Non-Community Property State Resident

SPOUSE 1 SPOUSE 2

SPOUSE 1 SPOUSE 2 REVOCABLE REVOCABLE TRUST TRUST

ASSETS ASSETS

On first death, Trust of first dying spouse becomes irrevocable. Credit Shelter Trust to avoid estate tax and protect assets of first dying spouse.

Assets of surviving spouse - flap in the wind.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 9 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Traditional Wealthy Non-Community Property State Resident

SPOUSE 1 SPOUSE 2

SPOUSE 1 SPOUSE 2 REVOCABLE REVOCABLE TRUST TRUST

ASSETS ASSETS

Why not give each spouse a testamentary Power of Appointment exercisable in favor of the spouse's estate, or a Credit Shelter Trust to be established under first dying spouse's Revocable Trust in order to possibly receive stepped-up income tax basis and funding of Trust using first dying spouse's exemption - see PLR 200403094, as associated with JEST Trust discussions?

Life Insurance During both Trust First Dying Spouse’s Surviving Spouse’s (Irrevocable and spouse’s Owns Life Insurance lifetimes: on First Dying Revocable Trust Revocable Trust Spouse)

Upon first Remaining death in $11,400,000* 2019: Assets

During surviving Held for Family QTIP Non- Surviving Spouse’s Revocable Trust Surviving Spouse spouse’s (By-Pass) GST Trust (Will include assets owned jointly on first & Children remaining Generation Skipping Trust (Marital Deduction Trust that (Not taxed in surviving spouse’s estate) is not generation skipping) death) lifetime:

Surviving spouse $6,500,000? Upon can have the right $15,000,000 Remaining second to redirect how Assets assets are Who knows? death: distributed on second death.

May be Generation Children’s Generation Skipping Skipping to be held After deaths Generation Skipping Children’s Trust (or Trusts for Children as Separate Trusts of both Trusts for Children Trust (or distributions) (Will merge with first dying for Children spouses: spouse’s Generation distributions) Skipping Trusts shown on left)

Benefits children and grandchildren. Benefits children. Benefits children and grandchildren. Benefits children. Not estate taxable in their estates. Taxable in their estates. Not estate taxable in their estates. Taxable in their estates. *Assumes first spouse dies in 2019 when the exemption is $11,400,000, and that the surviving spouse dies in a later year when the estate tax exemption has gone up to $6,500,000 (based upon CPI increases). The estate tax exemption is $11,400,000, less any prior reportable gifts, for those that die in 2019, and increases with the chained Consumer Price Index in $10,000 increments.

If the first spouse does not use the entire exemption amount, what remains may be added to the surviving spouse’s allowance under the “portability rules” but will not grow with inflation, and will be lost if the surviving spouse remarries and the new spouse dies first, leaving no exemption.

Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 11 Determining Best How To Allocate Assets As Between A Married Couple | Part I General Rules: -Typically want each trust funded with at least 11,400,000 worth of assets on death for estate tax planning. - May be funded from ½ of tenancy by the entireties assets via disclaimer and probate or by life insurance/pension/IRA assets. Trustee other than Spouse 2 could be Trustee Spouse 1 Spouse 2 Spouse 1 or Spouse 2 if Spouse 1 is sole grantor Alaska Community (or vice versa) Property?

Protected life Delaware TBE Trust? insurance and Spouse 1’s Spouse 2’s Gifting Trust annuity Lifetime By- Revocable Revocable (Irrevocable) contracts Pass Trust Trust Trust “owned by the (Irrevocable) insured.” FLORIDA TBE (Tenancy by the Entireties)

1. Only exposed to creditors if both 1. Safe from creditors of husband but 1. Safe from creditors of 1. Assets held directly by revocable 1. Safe from the creditors of spouses owe the creditor, if one exposed to creditors of Spouse 2 both spouses. trust are subject to Spouse 1’s the Grantor’s spouse. spouse dies and the surviving (Maintain large umbrella liability 2. If divorce occurs, creditor claims. 2. If funded by one spouse, spouse has a creditor, the insurance coverage to protect should not be subject 2. Direct ownership of limited may benefit other spouse spouses divorce, or state law or these assets.) to rules for division of partnership or LLC not in TBE may and children during the the state of residence changes. 2. On Spouse 2’s death, can be held property between have charging order protection lifetime of both spouses. 2. On death of one spouse, under a protective trust, which will spouses. (meaning that if a creditor 3. Otherwise can be identical surviving spouse may disclaim up continue to be safe from creditors 3. May be controlled by obtains a lien on the limited to gifting trust pictured to to ½ (if no creditor is pursuing of husband, subsequent spouses, the “entrepreneurial partnership or LLC, Spouse 1 the left. the deceased spouse) to fund By- and “future new family.” spouse” by using a cannot receive monies from the Pass Trust on first death. Family Limited limited partnership or LLC Partnership. without the creditor being paid).

SEE NEXT PAGE FOR SECOND TIER PLANNING A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s trust, half to two-thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk” spouse’s trust.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 12 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Determining Best How To Allocate Assets As Between A Married Couple | Part II Subsidiary Entity Techniques: -Limited partnerships and LLCs can be used to facilitate discounts, for estate tax purposes, and for charging order protection. Spouse 2 could be Trustee -Limited partnerships and LLCs can also be used to provide “firewall protection” from activities or properties owned. Spouse 1 Alaska Community Spouse 2 Trustee other than if Spouse 1 is sole grantor Property? Spouse 1 or Spouse 2 (or vice versa)

Delaware TBE Trust? Spouse 2’s Spouse 1’s Gifting Trust Lifetime By- Revocable Revocable (Irrevocable) Pass Trust Trust (Irrevocable) Trust FLORIDA TBE (Tenancy by the Entireties) 1. Assets held directly by revocable 1. Only exposed to creditors if both 1. Safe from creditors of husband but 1. Safe from creditors of 1. Safe from the creditors of trust are subject Spouse 1’s spouses owe the creditor, if one exposed to creditors of Spouse 2 both spouses. the Grantor’s spouse. creditor claims. spouse dies and the surviving (Maintain large umbrella liability 2. If divorce occurs, 2. If funded by one spouse, 2. Direct ownership of limited spouse has a creditor, the insurance coverage to protect should not be subject may benefit other spouse partnership or LLC not in TBE may spouses divorce, or state law or these assets.) to rules for division of and children during the have charging order protection the state of residence changes. 2. On Spouse 2’s death, can be held property between lifetime of both spouses. (meaning that if a creditor 2. On death of one spouse, under a protective trust, which will spouses. 3. Otherwise can be identical obtains a lien on the limited surviving spouse may disclaim up continue to be safe from creditors 3. May be controlled by to gifting trust pictured to partnership or LLC, Spouse 1 to ½ (if no creditor is pursuing of Spouse 1, subsequent spouses, the “entrepreneurial the left. cannot receive monies from the the deceased spouse) to fund By- and “future new family.” spouse” by using a limited partnership or LLC Pass Trust on first death. Family Limited without the creditor being paid). Partnership. 96% NV

SECOND TIER 100% 97% NV 3% V 1% V 3% V Spouse 1, PLANNING: Manager LLC LLC LLC FIREWALL LLC Leveraged Property or activity Investment

A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s trust, half to two-thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk” spouse’s trust.

Before Tax Reform 2018 After Tax Reform 2018

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 14 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 TENANCY BY THE ENTIRETIES TRUST / CATEGORIES JEST TRUST SEPARATE REVOCABLE TRUSTS TENANCY BY THE ENTIRITIES OUTRIGHT One-half of assets (or more if deceased spouse Stepped-up income tax basis on first Only the assets of the first dying spouse will 1 Probably contributed more to TBE trust will receive a spouse’s death obtain a stepped-up income tax basis stepped-up basis) Yes; most types of creditors of one spouse will not No; each spouse’s be able to reach TBE assets except possibly in Creditor protection during the lifetime share is exposed No; assets held under the revocable trust of a bankruptcy if there is joint debt. Note – it can be 2 of both spouses to creditors of spouse will be accessible to his or her creditors very difficult to draft a proper TBE trust – don’t that spouse assume that a trust intended to be a TBE trust will be a TBE trust No; TBE requires that the surviving spouse receive all assets held as TBE outright or with the ability to Creditor protection for the surviving Only the assets under the first dying spouse’s withdraw all such assets, which subjects such assets 3 spouse after the death of first dying Likely revocable trust will be protected from the to his or her creditors. However, the surviving spouse creditors of the surviving spouse. spouse might be able to disclaim assets inherited from the first dying spouse into a trust system that could be held in a protected manner. Simpler for many Simplicity of having one trust versus Often more confusing and more work to have 4 clients to have Simplest to have one trust two trusts separate trusts and separate assets one trust 5 Complexity of the trust documents Most complex Less complex than the JEST Simplest No; everything must pass to the surviving spouse Can trust assets be “locked up” on first (and/or the surviving spouse’s creditors!). However, death or incapacity of one spouse to Yes; unless the surviving spouse might be able to disclaim 6 help assure that assets are protected otherwise No; unless specially drafted. assets inherited from the first dying spouse into a for the surviving spouse and desired. trust system that could be held in a protected descendants? manner. Most effective if first dying spouse’s assets Normally not effective to avoid estate tax, but 7 Effectiveness for estate tax planning would not exceed Can be as effective as a JEST, but not always. provisions could permit a surviving spouse to the estate tax disclaim to a credit shelter trust if properly drafted. exemption amount. Will require legal and accounting advice and Similar to JEST, but less complicated and there Ease or complexity of administration Simplest to administer if surviving spouse inherits 8 separate trusts may be fewer trusts to administer after the first after first death. outright. and careful death. administration after first death. Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 15 Married Couple Asset and Trust Logistics Choices

JOHN SMITH MARY SMITH

JOHN SMITH REVOCABLE MARY SMITH REVOCABLE TRUST TRUST

All Assets TBE

Creditors of one spouse cannot attach joint assets during joint lifetime – on death of one spouse surviving spouse is sole owner.

An agreement with respect to the eventual inheritance could cause loss of tenancy by the entireties creditor protection status but would probably be legally enforceable.

Note – On death of one spouse, surviving spouse can disclaim up to one-half (½) of the joint assets into the revocable trust of the first dying spouse and have creditor and estate tax protection for the assets held disclaimed into the trust. A disclaimer cannot be made if the surviving spouse is insolvent.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 16 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Definition of Tenancy By The Entireties

Joint tenancy with right of survivorship is not enough because the law requires that “the 6 unities” exist. The 6 unities may be summarized as follows:

1. Unity of possession - Both spouses have joint ownership and control - it may be acceptable that a deposit agreement allows either spouse to withdraw independently of the other on the theory that the power to withdraw is an expression of an authority of agency given by each spouse to the other.

2. Unity of interest - Each spouse has the same interest in the account - it is not a problem if one spouse deposits all or most of the funds into the account as long as each spouse has the same interest immediately after the deposit.

3. Unity of time - The interests of both spouses in the asset must originate simultaneously in the same instrument, such as on the signature card. Do not try to convert an individual account into a tenancy by the entireties account. Instead, transfer assets from the individual account to a new tenancy by the entireties account.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 17 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Definition of Tenancy By The Entireties

4. Unity of title - Both spouses must have ownership under the same title.

5. Survivorship - On the death of one spouse, the other spouse becomes the sole owner of the entireties property. A general power of appointment given to one spouse over joint assets may vitiate tenancy by the entireties status.

6. Unity of marriage - Of course, the owners must be legally married under Florida law.

Non-residents who own property in Florida can also claim the tenancy by the entireties immunity. In Re Cauley, 374 B.R. 311, 316 (Bankr. M.D. Fla. 2007).

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 18 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Special Tenancy By The Entireties Issues

• Joint Accounts. Not with USAA, Strong Mutual funds and many others.

• You must read the account agreement to be sure. Better to set up a TBE LLC to own accounts.

• Stock Certificates and Shareholder Agreements.

• Tax Reporting and Tax Refunds.

• Tangible Personal Property.

• Automobiles and Other Registered Vehicles.

• Real Estate Owned Outside of Florida.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 19 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Marital Asset Preservation System (MAPS)

SPOUSE 2 SPOUSE 1

A required contribution to an Thanks for asset protection trust by Spouse visiting...hope to 2 after death of Spouse 1 is not see you soon! for the primary purpose of avoiding creditors of Spouse 2.

ASSET PROTECTION TRUST (In Asset Protection Jurisdiction)

Spouse 1 dies. Spouse 2 is required by written agreement to establish asset protection trust in asset protection jurisdiction with all unprotected assets, and contractual obligation to preserve these for common descendants. A standby unsigned, but trust company approved, Trust Agreement can be approved by both spouses during lifetime of Spouse 1 and/or nominally funded.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 20 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Marital Asset Preservation System (MAPS) One of the primary purposes for utilizing the Marital Asset There can also be limitations placed on how much Preservation System (“MAPS”) is to ensure that married compensation might be paid to third parties for services like couples keep their marital assets in the family for generations housekeeping, nursing, private lessons, personal trainers and to come. In general, conscientious estate and tax planners will otherwise. There can also be limited access for charity, church do their very best to meticulously plan and preserve assets for or synagogue donations, and other defined causes. a surviving spouse, while also enabling the surviving spouse to leave assets to common descendants of the decedent, and An Ability to Provide Limited Benefits and Compensation to with the minimal amount of taxes and probate expenses. a Subsequent Spouse.

However, there is one question that is routinely left out of the While it is commonly assumed that the “next spouse” might discussions between married couples and estate planners threaten to deprive descendants of marital wealth, and might during the planning process: place the surviving spouse in jeopardy of losing assets that would be needed for his or her well-being, there is also the Would you like some assurance that your marital assets will possibility that the subsequent spouse will contribute only pass to your common descendants upon the death of the meaningfully both to the preservation and enhancement of survivor of you? marital assets, and with respect to providing care and support for the surviving spouse. It could be both unfair and The answer to this question is usually a resounding “yes”, and counterproductive for the surviving spouse to not be able to as such, requires the surviving spouse to protect the marital allow a subsequent spouse to contribute meaningfully to assets by not allowing them to be left to a subsequent spouse marital assets, and to be compensated for providing necessary or some other future significant other. services, whether personal, nursing, or managerial, where this is clearly in the best interests of the surviving spouse, and That answer leaves the estate planner with some rather possibly one or more of the descendants of the original intricate issues and challenges, not to mention more work and marriage. an added layer of complexity to design and implement the various trust systems and strategies to be used. For this reason, the authors also provide that the MAPS Agreement or system may be amended by one or more of the Once the clients have decided that this is the right strategy for adult descendants of the original couple, and/or an them, the planner must explain that upon the death of one independent Trust Protectors or other advisors, to take into spouse, the surviving spouse may serve as Trustee or Co- account appropriate circumstances and formal requests for Trustee of one or more irrevocable trusts, with the power to changes. change the trusteeship within pre-agreed parameters. These irrevocable trusts may only allow the surviving spouse to The above normally fits well and naturally under a credit have access to assets and monies as needed for the spouse to shelter/marital deduction trust arrangement that will typically maintain the standard of living that has been enjoyed during be established on the death of a first dying spouse where the marriage, and to provide support for common federal estate tax is a possible concern, but quite often a good descendants. There are several restrictions that can be placed many assets will be owned outright by the surviving spouse on a surviving spouse, one of which is to allow them to only or jointly with right of survivorship, and IRA and qualified make distributions outside of the family based upon an annual retirement plans are typically best left to a surviving spouse to allowance that might be used for charity, religious enable postponement of having to take taxable distributions. organization dues and donations and gifts to friends based upon guidelines that can be set forth in the documents. [email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 21 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Marital Asset Preservation System (MAPS)

In states that do not recognize community property, most planners will use Waiver of Marital Rights. separate revocable trusts for affluent husbands and wives for estate planning, because of established customs and the complexities associated with using Most states have statutes which provide a surviving spouse with a joint trusts. In such situations, it is possible to have the revocable trust of the minimal outright disposition, most commonly known as the Elective surviving spouse become irrevocable upon the death of the first surviving Share. In addition, some states provide a surviving spouse with spouse. For purposes of federal estate and gift taxes, this event will be homestead inheritance and other rights which may be waived during considered an incomplete gift because it provides the surviving spouse with the estate planning process while both spouses are living. the right to veto payments to any person other than the surviving spouse during their remaining lifetime, and the power to appoint trust assets to The estate planner will have to be very careful with respect to common descendants of the married couple. disclosing conflict of interest issues and evaluating whether one or both spouses should be required, or at least strongly urged, to seek Alternatively, in states that do recognize community property, we find that independent legal counsel before being legally bound to have limited joint trusts are becoming more prevalent. access and control to marital and inherited assets after the death of one spouse. In the event that a conflict of interest does arise, the An objective for many estate and tax planners, regardless of the state in estate planner should withdraw and require the spouses to retain which they live, is to have the first dying spouse’s death cause a step-up in separate counsel. Furthermore, because the planner represented both the income tax basis to a fair market value for any and all family assets. This spouses, they are prohibited from representing either one of them strategy should be utilized to the extent that the family would benefit from against the other, even with informed consent. having an increased basis, which would essentially take any property that appreciated during the decedent’s lifetime and provide the surviving spouse ABA-Model Rule 1.7 addresses the rules for Current Client Conflicts with the ability to not recognize any gain on such property when they come of Interest. In essence Rule 1.7(a)(1) states that, a lawyer shall not into possession. represent a client if representing one client will be directly adverse to another client. However, this Rule is not an absolute bar to Many planners in non-community property states are using Joint Exempt representing a client when there is a conflict. Subsection (b) provides Step-Up Trusts (“JEST”), which may enable clients to receive this stepped-up that a lawyer may represent a conflicted client if (1) they believe basis on all joint trust assets upon the death of the first dying spouse. When they can provide competent representation; (2) it is not prohibited by the first spouse dies, assets held by the joint trust are used to fund a credit law; (3) it does not involve one client asserting a claim against shelter trust for the benefit of the surviving spouse and descendants. These another client, both of whom are represented by the lawyer; and (4) assets now held by the credit shelter trust will receive a full step-up in basis, each client gives informed consent. In the context of marital and escape tax liability upon the surviving spouse’s death. inheritance, subsection (b)(3) will almost always bar the attorney from representing one client over another, even with informed Life insurance can also be integrated into the arrangement by having the consent. death benefit payable to an irrevocable trust, which may be a separate trust that owns the policy so as not to be subject to federal estate tax on the death of the first dying spouse.

SPOUSE 1 SPOUSE 2

TBE REVOCABLE TRUST

Carefully drafted Trust provides that all beneficial interests are owned as tenants by the entireties, and solely owned by surviving spouse after first death -

Then acts as a simple Revocable Trust for the surviving spouse.

Surviving spouse must have total control over the Trust after the first death to qualify under tenancy by the entireties.

Question ? . ? Why not have Credit Shelter/QTIP Trust provisions that would be activated to the extent that the surviving spouse disclaims TBE Trust assets? - To be a true TBE Trust, the beneficial interest disclaimed would need to flow through the probate estate of the first dying spouse.

It is our intention to have this Trust held as a single entity subject to only the requirement that during the joint lifetime of JOHN CLIENT and JANE CLIENT, all ownership interests and rights shall be consistent with the Florida law of Tenancy by the Entireties. We have therefore not designated separate shares as between us and any assets placed into this Trust shall be considered as held for both of us as a Tenancy by Entireties asset. Accordingly, neither JOHN CLIENT nor JANE CLIENT shall be able to unilaterally transfer, assign, or pledge their beneficial interest in this Trust, or otherwise transact with respect to, or perform any action related to their beneficial interests without the consent of the other beneficiary while both of such beneficiaries are living.

It is agreed and acknowledged that JOHN CLIENT and JANE CLIENT own their beneficial interest in the Trust as Tenants by Entireties under Florida law, so that in the event of the death of either JOHN CLIENT or JANE CLIENT, the surviving spouse will be considered the sole beneficial owner of the Trust. Accordingly, neither of JOHN CLIENT nor JANE CLIENT shall be able to unilaterally transfer, assign or pledge their beneficial interest in this Trust, or otherwise transact with respect to or perform any action relating to their beneficial interests without the consent of the other beneficiary while both of such beneficiaries are living. This Trust Agreement shall be construed and administered based upon the above agreement with respect to Tenancy by the Entireties treatment, notwithstanding any inconsistency or ambiguity that might exist under this Trust Agreement. After the death of one spouse, the surviving spouse will have the continuing power to amend or revoke this Trust as described in Section 2.01 hereof.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 24 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 TBE Revocable Trust/ LLC Condo -Hold the Fries!

TBE LLC ownership will pass to Revocable Trust by pay-on-death clause on death of surviving spouse.

SPOUSE 1 SPOUSE 2

TBE

TBE TBE REVOCABLE LLC TRUST

LLC Operating Agreement provides for automatic ownership by On Spouse 2’s death, ownership of Revocable Trust on death of surviving spouse per Blechman v. Estate Professional Corporation passes to of Blechman – Fla. 4th DCA 2015 Opinion. joint Revocable Trust on death.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 25 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 LLC OPERATING AGREEMENTS CAN SERVE AS “TRANSFER ON DEATH” MECHANISM TO AVOID PROBATE AND TRUST INTERACTION (NOT TO MENTION CONFUSION & UNCERTAINTY) By Alan Gassman and Chelsea Bellew In Blechman v. Estate of Blechman, 460 So. 3d 152 (Fla. 4th DCA 2015) provisions of an Operating Agreement of a limited liability company caused the Decedent’s membership interest to vest immediately upon his death.

While the Decedent made provisions for the membership interest to pass to someone outside his family in a trust before he passed away, the court found that the provisions of the Operating Agreement were controlling. The provisions of the Operating Agreement were designed to keep the company within the family and did not permit for a membership interest to pass to anyone else.

The Operating Agreement was executed in New Jersey and was, therefore, interpreted according to New Jersey case law. Minoff v. Margetts was a New Jersey case that permitted members of an LLC to use provisions in an Operating Agreement to control the disposition of membership interests when one member passes away. Following this rationale, the court found that the interest in this case vested in the two children upon the death of their father, according to the Operating Agreement, and that this interest was not a part of his estate. The trust had an amendment that provided for the interest in the LLC to pass to the Decedent’s girlfriend upon his death, and the court found that this instrument was subordinate to the provisions of the Operating Agreement. The provisions of the trust directly contradicted the terms and intent of the Operating Agreement. Therefore, the Decedent’s membership interest in the LLC passed upon his death outside of probate to his children and nullified the terms of the amended testamentary trust.

The specific language in the Operating Agreement that was approved by the court was as follows:

6.3 Death of Member (a) Unless (i) a Member shall Transfer all or a portion of his or her Membership Interest in accordance with 6.1 or 6.2 hereof, or (ii) a Member bequeaths the Membership Interest in the Member’s last will and testament to members of the Immediate Family of the respective Member, or (iii) all such Membership

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 26 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Interests of a deceased Member are inherited, or succeeded to, by Members of the Immediate Family of the deceased Member, then in the event of a death of a Member during the duration of this Agreement, the Membership Interest of the deceased Member shall pass to and immediately vest in the deceased Member's then living children and the issue of any deceased child, per stirpes.

The court noted as follows:

…not every instrument which provides for performance at or after death is testamentary in character…There is nothing in the statute of wills that prevents the creation of contract of a bona fide equitable interest in property and its enforcement after the death of a contracting party, even though the date of death is agreed upon as the time for transfer.

Do we now have an obligation to review every Operating Agreement that a client has involvement with to see whether inheritance rights and disposition may be impacted thereby? Do we dare use similar language in an LLC Operating Agreement that might distort an estate plan later when the client or their advisors are not aware of the provision?

Perhaps the following provision can be considered:

Upon the death of JOHN SMITH, his membership interest shall immediately pass to and immediately vest in his spouse, MARY SMITH, or in equal shares to his children, per stirpes, if MARY SMITH does not survive him, provided that the above shall not apply to the extent of any future provision of any Will or Pour-Over Will and Revocable Trust that might be entered into by JOHN SMITH, if the legal effect thereof would be to provide for a different disposition of his LLC interest, regardless of whether such LLC interest is specifically referred to or not. The determination of whether any such subsequently signed separate Will or Revocable Trust exists to facilitate such change shall be made by the Manager or Managers of the Company, in their reasonable discretion, and the Company shall be entitled to the distributions or liquidation entitlement rights to the successor owners of the membership interest to the extent of money expended to facilitate such determination.

Should we consider using similar arrangements for our clients, and, if appropriately used, will these avoid exposure to individual creditors of the deceased LLC Member? [email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 27 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Homestead Confidentiality (What does the Property Appraiser Website Say About Ownership?) SPOUSE 1 SPOUSE 2

TBE

Delaware, Wyoming or Colorado LLC, Trustee

LAND TRUST

Homestead

Life Insurance During both Trust First Dying Spouse’s Surviving Spouse’s (Irrevocable and spouse’s Owns Life Insurance lifetimes: on First Dying Revocable Trust Revocable Trust Spouse)

Upon first Remaining death in $11,400,000* 2019: Assets

Surviving spouse $6,500,000? Upon can have the right $15,000,000 Remaining second to redirect how Assets assets are Who knows? death: distributed on second death.

Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 29 (From Alan Gassman’s article on Portability Mistakes) Credit Shelter Trusts vs. Relying on Exemption Portability A married couple might provide for all assets to go to the surviving spouse, or to “lock up” up to $11,400,000 on the first death to facilitate a “credit shelter trust.”

SURVIVING SPOUSE CREDIT SHELTER INHERITS ALL ASSETS – USE PORTABILITY OF HIS TRUST OR HER $11,400,000 EXEMPTION

1. Uses the first dying spouse’s $11,400,000 1. No preservation of first dying spouse’s GST Generation Skipping Tax exemption (the ability exemption, although a “reverse QTIP” election to benefit children without being taxed at their may be able to be made in some situations to level) – this is lost if portability is used. preserve some of the first dying spouse’s GST exemption. 2. Assets can increase in value, to hopefully 2. No CPI or other value increase after first dying outpace inflation spouse’s death. 3. Better investment opportunities can be 3. Combined assets will be used to pay personal channeled to shelter trust assets. expenses and to hold “wasting assets.” 4. Co-Trusteeship can require conservatism. 4. Surviving spouse may lose or give away the assets in remarriage or otherwise. 5. Can be protected from creditors of the surviving 5. Not creditor protected. spouse. 6. Can borrow money from surviving spouse at the 6. No ability to leverage with debt or otherwise. applicable Federal Rate (presently 1.51% for a 9- year Note), and it runs a greater rate of return on its own investment.

During both First Dying Spouse’s Surviving Spouse’s spouse’s lifetimes: Revocable Trust Revocable Trust

Upon first Remaining death in $11,400,000* 2019: Assets

During Family QTIP Non- surviving (By-Pass) Generation Skipping QTIP GST Trust Surviving Spouse’s Revocable Trust spouse’s Trust MECHANISM (Marital Deduction (Will include assets owned jointly on first death) remaining (Not taxed in surviving Trust that is not spouse’s estate) generation skipping) lifetime: The assets in the Clayton QTIP would be Surviving spouse includable in the surviving spouse’s gross $6,500,000?* Remaining Upon can have the right estate, but the surviving spouse can use second to redirect how some of his or her DSUEA, and could $15,000,000?* Assets assets are make a “reverse QTIP election” to utilize death: distributed on any portion of the first dying spouse’s second death. unused GST exemption.

Children’s Trust Generation Skipping Trusts After deaths Generation Skipping Children’s Trust (or outright for Children of both (Can merge with first dying spouse’s (or outright Trusts for Children distributions) spouses: Generation Skipping Trusts shown distributions) on left) Benefits children and grandchildren. Benefits children. Benefits children and grandchildren. Benefits children. Not estate taxable in their estates. Taxable in their estates. Not estate taxable in their estates. Taxable in their estates.

*Assumes first spouse dies in 2019 when the exemption is $11,400,000, and that the surviving spouse dies in a later year when the estate tax exemption has changed. The estate tax exemption is $11,400,000, less any prior reportable gifts, for those that die in 2019, and increases with the CPI in $10,000 increments. If the first spouse does not use the entire exemption amount, what remains may be added to the surviving spouse’s allowance under the “portability rules” but will not grow with inflation, and will be lost if the surviving spouse remarries and the new spouse dies first, leaving no exemption.

I hereby appoint ______, ______and ______(or if left blank, selection shall occur as described in Section 1.11)as Independent Fiduciaries (or Independent Fiduciary if only one is named) for the purposes of allowing for determination of whether there should be an alteration of the CLIENT FAMILY TRUST established hereunder whereby some or all of such assets may be held as a Q-TIP Marital Deduction Trust, as separate Q-TIP Marital Deduction Trusts, and/or paid, in whole or in part, outright to my spouse for income and estate tax planning purposes in view of the new estate tax law.

In order to facilitate this, each Independent Fiduciary shall have the power to cause my Personal Representative to file a timely filed federal estate tax return with respect to my estate, to designate that all or a portion of the CLIENT FAMILY TRUST shall qualify as a Q-TIP Trust under Code Section 2056(b)(7) in which case such Trust shall meet the following requirements, and shall be construed to have the following provisions effective upon my death, notwithstanding anything in Section 4.02(d) to the contrary: (a) the Trustee shall pay all income to my spouse beginning upon my date of death, no less frequently than annually; (b) the Trust assets shall be used solely for my spouse during said spouse's lifetime, with any and all distributions to be made solely to said spouse; and (c) the Trustee shall be required to keep the Trust assets under such Trust productive, provided that such requirements shall not apply except to the extent that my Personal Representative, based upon the written instructions from the majority of the Independent Fiduciaries, elects for such Trust to qualify for the federal estate tax marital deduction by making a "Clayton Q-TIP Election" pursuant to Code Section 2056 and Treasury Regulation Section 20.2056(b)-7(d)(3)(i). In addition, if determined appropriate by the Independent Fiduciary or Fiduciaries, the Trust assets may be paid in whole or in part outright to my said spouse.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 32 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 DISCLAIMER- Don’t Forget the Disclaimer Trust

Disclaimer Trust. Any property that becomes a portion of the Trust estate due to a "qualified disclaimer" (as defined in Section 2518 of the Code and regulations thereunder, as then amended) executed by my spouse, and any property in the Trust estate with respect to which my spouse, or a Trustee of any Q-TIP Trust established under this Trust Agreement, has executed such a qualified disclaimer, shall be held, managed and administered as separate trust called the CLIENT DISCLAIMER TRUST pursuant to this Section 4.04, and shall not be co-mingled with any other trust established under this Trust Agreement. In the unlikely event that my federal estate tax exemption exceeds my federal generation skipping tax exemption at the time of my death, such CLIENT DISCLAIMER TRUST shall be segregated into a separate “GST Disclaimer Trust” and a separate "Non-GST Disclaimer Trust," with the GST Disclaimer Trust being comprised of a fraction of the CLIENT DISCLAIMER TRUST of which (a) the numerator shall be my available GST exemption after allocation of such GST exemption to the Family Trust established under Section 4.02(d) hereof, and (b) the denominator shall be the value of the assets in the Trust estate that become a portion of this CLIENT DISCLAIMER TRUST, as finally determined for federal tax purposes, other than assets paid or distributed under preceding Articles of this Trust Agreement, and the Non-GST Disclaimer Trust being comprised of the remainder of the CLIENT DISCLAIMER TRUST.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 33 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 DISCLAIMER- Don’t Forget the Disclaimer Trust

The CLIENT DISCLAIMER TRUST, including the GST Disclaimer Trust and the Non-GST Disclaimer Trust if the CLIENT DISCLAIMER TRUST is so divided, shall be held, managed and distributed pursuant to the following provisions:

(a) Income and Principal. During my spouse's lifetime, the Trustee may pay to or for the benefit of my spouse and/or descendants at any time and from time to time such sums from income and/or principal as are reasonably necessary for their health, education, maintenance and support, provided that no distribution to or for the benefit of any descendant of mine shall be in satisfaction of any legal obligation, including obligation of support, of my spouse, any Trustee or any beneficiary hereunder. Any distributions shall come first from income and lastly from principal, and I request, but do not direct, that distributions of principal be made first from any Q-TIP Trust established for my spouse's benefit before invading the principal of this Disclaimer Trust. Any undistributed income shall be added to principal. In the event that my spouse is serving as Trustee or Co-Trustee of this Disclaimer Trust, said spouse shall not have the ability to exercise any discretion provided herein with respect to distributions to any beneficiary of this Disclaimer Trust, provided however that nothing herein shall prevent said spouse from having the ability to make distributions pursuant to the terms of this Disclaimer Trust if and when said spouse is acting as a Trustee of this Disclaimer Trust, and then only for the health, education, maintenance and support of such beneficiary.

(b) Disposition on Death of Surviving Spouse. Upon my spouse's death, any property remaining in the Disclaimer Trust shall be added to and become part of the Generation Skipping Trust established under Section 4.02(e), to be held, managed and distributed as provided therein, provided that any property remaining in the Non-GST Disclaimer Trust, if established, shall be added to and become part of the Children's Trust established under Section 4.02(f).

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 34 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Clayton QTIP vs. Disclaimer To Credit Shelter Trust vs. Other Alternatives

1. May elect to be treated as a credit shelter trust without participation or consent from surviving spouse.

- Better than a disclaimer, because surviving spouses are not always rationale.

2. May elect to be treated as a QTIP trust so that there will be a step-up in income tax basis on second death.

3. Disadvantage – Must file an estate tax return.

Alternative – If clients are well under estate tax exemption, simply use a credit shelter trust and allow Trust Protectors to give the surviving spouse a Power of Appointment.

But no Power of Appointment needed for a QTIP

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 35 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 SIMPLE BUT PRACTICAL REVOCABLE TRUST LANGUAGE THAT CAN BE CONSIDERED

Independent Fiduciary. The term "Independent Fiduciary" shall refer to one or more individuals who are named under this document and who may appropriately be independent certified public accountants who have no financial relationship with the parties selecting them, and who have at least ten (10) years experience working full-time as a certified public accountant with a reputable certified public accounting firm with at least $1,000,000.00 of malpractice insurance to cover normal certified public accounting activities. No individual or institution that is a beneficiary of this Trust or any trust herein established may serve as an Independent Fiduciary, and if a beneficiary is inadvertently named for such role, he or she shall be considered to have resigned and not be able to serve, and can be replaced with an alternate Independent Fiduciary to facilitate fulfilling the intentions set forth under this Trust Agreement.

The Independent Fiduciary or Fiduciaries shall be indemnified and held harmless by the Trustee for any liability or expense incurred as a result of providing my spouse or the Primary Beneficiary of a separate trust, as applicable, with such Power of Appointment, and are encouraged to consider whether providing such Power would make the trust assets subject to creditor claims of said spouse or Primary Beneficiary, and whether the situs of the trust should appropriately be transferred to a different state for creditor protection purposes before such Power is granted.

If no individual or institution is appointed to serve as Independent Fiduciary, or if one or more appointed individuals or institutions are named but are unable or unwilling to serve, then one (1) Certified Public Accountant selected by GASSMAN, CROTTY & DENICOLO, P.A. shall serve as Independent Fiduciary. If more than one individual or institution is appointed to serve as Independent Fiduciaries and no two (2) of them are able or willing to serve as Independent Fiduciaries, then any two (2) Certified Public Accountants selected by GASSMAN, CROTTY & DENICOLO, P.A. shall serve as Independent Fiduciaries. If GASSMAN, CROTTY & DENICOLO, P.A. is unable or unwilling to select an Independent Fiduciary or Independent Fiduciaries then the party that would appoint the Trustees in the event of a vacancy in the office of Trustee under Section 6.05 of this Trust Agreement may appoint one or more of a duly licensed lawyer that is Board Certified by any State Bar Association, the District of Columbia, or the National Association of Estate Planning Counsels (NAEPC) in Wills, Trusts & Estates, or Taxation, a Certified Public Accountant who has done work for our family for at least fifteen (15) years, and/or a Licensed Trust Company to serve as Independent Fiduciaries, provided that at all times there shall be at least two individuals or a Licensed Trust Company serving as Independent Fiduciaries. Notwithstanding the previous sentence, in no event can any person or entity be appointed to serve as Independent Fiduciary if such person or entity is considered as a "related or subordinate party" with respect to me as such term is defined under Internal Revenue Code Section 672(c).

The Primary Beneficiary shall have a limited Power of Appointment (as defined in Section 1.09 of this Trust Agreement) with respect to his or her separate trust, and upon the Primary Beneficiary's death, the Trustee shall pay the remaining income and principal, or such portion thereof over which said Power is exercised, as the Primary Beneficiary directs pursuant to the exercise of such Power. Notwithstanding the above, and in order to assure that the Primary Beneficiary has been properly counseled with respect to the advantages of keeping assets under trust for future generation, such power shall not be exercisable unless such Primary Beneficiary shall meet physically with a lawyer who is Board Certified in trusts and estates, taxation, or elder law, and has at least ten (10) years’ experience to discuss the advantages of maintaining assets under trust to facilitate protections of beneficiaries from creditors, divorce, estate taxes, and improvidence, and no exercise of such power shall be considered to have occurred unless such qualified lawyer signs a letter contemporaneously with the execution thereof to confirm that the executions follows a consultation with such lawyer which provided input and advice with respect thereto.

Further, I hereby appoint my sister and CPA as Independent Fiduciaries for the sole and limited purpose of bestowing upon the Primary Beneficiary the power to appoint all or a portion of Trust assets to creditors of the Primary Beneficiary’s estate, if deemed appropriate by both of the said Independent Fiduciaries at any time that the Trust is in existence, exercisable by a written instrument signed by both of the Independent Fiduciaries. The successorship, responsibility, and governance associated with such Independent Fiduciary or Fiduciaries shall be as set forth in Section 1.11 of this Agreement.

No Planning JEST or Special Power of Alaska Community Appointment Trust Property Trust Arrangements Drafting and Design Time to None. Requires sophisticated Can be simple to install. Implement drafting and implementation. Creditor Protection Attributes No effect. Will typically expose assets Alaska creditor protection law to creditors to each owner applies. spouse unless further planning is effectuated. Annual Maintenance Costs None beyond what client is None but best to review $3,000 per year payment to already paying. assets and allocation within Alaska trust company and JEST periodically. requiring that the clients follow appropriate formalities if they want to have creditor protection attributes. Administration After Death of No special provisions Must meet with qualified Can simply dissolve trust or First Spouse needed. planner to decide how to maintain trust and step up allocate assets between one has occurred. or two credit shelter trusts and administration issues. Degree of Tax Certainty Nonapplicable. The Service may challenge Statutory support and over the stepped-up basis and decades of community funding of a credit shelter property case law eliminates trust from the assets of the stepped-up basis and full first dying spouse. credit shelter trust funding issues.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 38 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 From Howard Zaritsky – Lester Law January 2017 Heckerling Institute Fundamentals presentation (pgs 1-134 & 1-135): GETTING A FULL STEP-UP USING POWERS OF APPOINTMENT ON FIRST DEATH – THE JEST TRUST Consider the JEST Trust to fully fund a Credit Shelter Trust while receiving a stepped up basis for all joint and separate assets. The Joint Estate Step-Up Trust (JEST)

A recently variation on the tax-basis revocable trust is the joint estate step-up trust, or JEST. See Gassman, ' Denicolo, & Hohnadell, JEST Offers Serious Estate Planning Plus for Spouses - Parts I and 2, 40 Est. Plan. 3, 14 (Oct., Nov. 2013).

1. Structure of the JEST

a) Joint Revocable Trust

A JEST is a joint revocable trust created by a married couple who reside in a non community property state. The JEST becomes irrevocable when the first spouse dies; both powers to revoke then terminate.

b) Separate Shares for Each Spouse

Each spouse owns a separate share of the trust.

c) Each Spouse Can Terminate Trust During Joint Lives

Each spouse has the power to terminate the trust during their joint lives, when each spouse's share will be distributed to him or her individually.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 39 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Using General Power of Appointment to Receive Step-Up In Basis

Potential Exceptions:

1. Power Acquired Within One Year of Death – IRC 1014(e) and TAM 9308002

In the case of a decedent dying after December 31, 1981, if—

1. Appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedent's death, and

2. Such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor)

The basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent.

2. Step Up May Not Apply to Extent the Property Has Been Depreciated – IRC 1014(b)(9)

“…if the property is acquired before the death of the decedent, the basis shall be … reduced by the amount allowed to the taxpayer … for exhaustion, wear and tear, obsolescence, amortization, and depletion on such property before the death of the decedent.”

NOTE – Section 1014(b)(4) applies when the power is actually exercised and does not include a similar reduction for depreciation taken by the taxpayer

SPOUSE 1 SPOUSE 2

JEST TRUST

SPOUSE 1's JOINT SPOUSE 2's ASSETS ASSETS ASSETS

On first death, up to exemption amount of first dying spouse (as much as $11,400,000), may pass to Credit Shelter Trust or Trusts to benefit surviving spouse and descendants, with a possible full step-up of all assets - excess assets going into QTIP Trusts, which may also qualify for full step-up.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 41 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 JEST Credit Shelter Trust B Planning Accepted as funded by first dying spouse. Will not be subject to estate tax at the level of the surviving spouse.

ALTERNATIVE A Will not be subject to creditor claims of the surviving spouse.

This is the optimum result.

CREDIT SHELTER Considered as funded by surviving spouse. TRUST B Might be subject to estate tax at the level of the ALTERNATIVE surviving spouse. B Might be subject to creditor claims of the surviving Formed from assets of the share spouse, unless local law of the Trust provides of the surviving spouse. otherwise.

Expected to be considered as Strategy 1 - Incomplete Gift Treatment being transferred to Credit Shelter Trust B by the first dying The surviving spouse maintains a Power of Appointment over the Trust Strategy 2 - Complete Gift Treatment spouse for federal estate tax assets, which causes the Trust to be considered as an incomplete gift for purposes pursuant to Private federal gift tax purposes, and the Trust assets will be considered as If the surviving spouse disclaims all Powers of Appointment Letter Ruling 200101021 and owned by the surviving spouse for estate tax purposes on his or her over the Trust, then the transfer to Credit Shelter Trust B is Private Letter Ruling 200210051. death. considered to be a complete gift by the surviving spouse, and the Trust will not be subject to federal estate tax of the The IRS could claim that Credit In light of the IRS' position in CCA 201208026, it is best to give the surviving spouse's estate. Shelter Trust B was funded by surviving spouse a lifetime Power of Appointment over the assets in the surviving spouse. Credit Shelter Trust B to assure that an incomplete gift results for The value of the assets passing to Credit Shelter Trust B would federal gift tax purposes. reduce the surviving spouse's $11,400,000 exemption.

If there are separate children for each spouse or a concern that the Give the surviving spouse the power to replace Trust assets surviving spouse might not appropriately exercise a Power of with assets of equal value, so then it can be considered a Appointment, then it could be limited to being exercisable only with a Defective Grantor Trust if this occurs. consent of non-adverse parties, or limited to the extent needed to avoid imposition of federal gift tax by funding under a formula clause. Note (applicable to both Strategy 1 and Strategy 2): Situs Credit Shelter Trust B in an "asset protection trust jurisdiction" to avoid having creditors be able to reach into the Trust, and also to avoid the Trust being included in the surviving spouse's estate if the surviving spouse was considered as a contributor to the Trust for federal estate and gift tax purposes.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 42 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Joint Exempt Step-Up Trust (JEST) Chronology – The 4 Steps from Drafting to Implementing Derived from articles that can be found on Leimberg Information Services (Estate Planning Newsletter #2086) and Estate Planning Magazine October and November 2013 Editions

Before Funding Step 4 Step 2 Step 3 Results of JEST Technique Funding of Joint Division upon First Dying Revocable Trusts; Spouse’s Death -For Spouse 2 & Descendants benefit (limited by each spouse has the Assume Spouse 1 dies first right to revoke ascertainable standard) Spouse 1’s Assets his/her share until - Assets will receive a stepped-up basis first death -Assets are protected from Spouse 2’s creditors - Assets escape estate tax on Spouse 2’s death Credit Shelter Trust A Spouse 1’s Share Funded from Spouse 1’s Share in the amount of Spouse 1’s Assets Spouse 1’s available Estate - Spouse 2 can be beneficiary of income and principal Joint Assets: Joint ½ to each Tax Exemption (ETE) -Assets will receive a stepped-up basis on Spouse 1’s Tenants w/ Right of Spouse’s death, and then again on Spouse 2’s death ½ of former Survivorship share -Assets included in Spouse 2’s taxable estate JTWROS Assets Q-TIP Trust A -Will be protected from Spouse 2’s creditors If Spouse 1’s Share ½ of former TBE exceeds Spouse 1’s Assets (or by available ETE, the excess will fund this trust ½ to each other percentage) -Assets may receive a stepped-up basis, but this is more Joint Assets: Spouse’s likely if Spouse 2 is not a beneficiary -May escape estate tax liability on Spouse 2’s death Tenancy by the share or Spouse 2’s Share Credit Shelter Trust B actuarial -For creditor protection and estate tax exclusion Entireties If Spouse 1’s Share is less purposes, CST B may be moved to an APT jurisdiction value than his available ETE, Spouse 2’s Spouse 2’s Share will fund Special Consideration: If Spouse 2 is found to have Assets this trust in the amount of made a gift of trust assets to Spouse 1 upon Spouse 1’s Spouse 1’s remaining ETE death, this gift may qualify for the marital deduction (But not in excess of Spouse If IRS argues that Spouse 2 has gifted to trust the gift ½ of former 2’s available ETE) will be incomplete because of Spouse 2’s power of JTWROS Assets appointment Spouse 2’s Assets Q-TIP Trust B ½ of former TBE If Spouse 2’s Share has Assets (or by any remaining assets, -Spouse 2 will be income beneficiary -Assets may receive a stepped-up basis on Spouse 1’s death & other percentage) they will be used to The IRS could find a gift upon contribution of again on Spouse 2’s death TBE assets to the joint revocable trust, but this gift Step 3 Note: fund this trust -Assets included in Spouse 2’s estate -May not be protected from Spouse 2’s creditors unless moved will qualify for the marital deduction if recipient CST A and CST B can be merged if there is no concern with to APT trust jurisdiction spouse can withdraw what is added to Spouse 1 or estate tax, stepped-up basis, creditor protection, or credit shelter -If IRS argues that Spouse 2 has gifted to trust the gift will be Spouse 2’s share. Also see PLR 200201021. trust effectiveness. Q-TIP Trust A and Q-TIP Trust B can be incomplete because of Spouse 2’s power of appointment merged if there is no concern with respect to stepped-up basis or creditor protection effectiveness.

Gift Upon Death of Appoints to Credit 1993 Technical Advice & First Dying Spouse CREDIT SURVIVING First Dying Shelter Trust 2001 and 2002 Private Letter SHELTER SPOUSE (Qualifies for marital Spouse Rulings (Included in TRUST deduction) 1STD’s Estate – No Step up under 1014(e) as arranged (Avoids Estate Tax on SS’s Death)

Mulligan Zaritsky Blattmachr Article 2015 Heckerling Presentation. If first dying spouse needs Credit Shelter Trust could be approval of surviving spouse to Will the service consider the found to be funded by surviving appoint then 2041 may not apply, surviving spouse to have funded spouse under step transaction could be considered as a gift of ½ the credit shelter trust or trusts doctrine so creditor may invade by the surviving spouse – but by reason of the step transaction the trust in most states. 1933 Johnston case held doctrine? otherwise in a similar situation.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 44 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Use of the Optimal Basis Increase Trust (“OBIT”)

A concept developed by Edwin Morrow is the “Optimal Basis Increase Trust” where an older relative or friend of the grantor is made a beneficiary of an irrevocable trust, and is given a testamentary general power of appointment in order to cause a step-up in basis on assets upon the death of the older individual. Such general powers of appointment can be drafted where they are expressly provided to the older individual under the terms of the trust document, they can bestowed as an independent committee (such as trust protectors) determines in their discretion, or they can be drafted as a formula general power of appointment clause that only applies only to appreciated assets.

Therefore, an individual who is under the estate tax exemption levels can sell appreciated assets to a defective grantor trust in exchange for an installment note, where the trust provides an older relative or friend with a general power of appointment upon the individual’s death. Upon the older beneficiary’s death, the assets in the trust will receive a new, increased basis that can provide income tax savings upon ultimate liquidation of the asset, or an increased depreciation allowance, if the property is depreciable.

The trust document can provide that the beneficiary holding the general power of appointment can assign the assets to or for the benefit of the creditors of his or her estate, and also include the grantor’s family (or even the grantor in certain situations) as potential appointees of the trust assets. The trust can further provide that, if such power of appointment is not exercised by the power holder, then the assets in the trust will be held for the grantor’s family.

If the power holder exercises the power of appointment, the power holder will likely be considered the grantor of the trust containing assets subject to the power of appointment, which would trigger income tax on any outstanding amounts payable under the promissory note owed back to the grantor, which are in excess of the greater of $5,000 or 5% of the value of the trust assets.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 45 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Planners may recommend separating/transmuting community property to avoid all assets being subject to the claims of the creditors of either spouse, or possible use of Alaska or Tennessee Community Property Asset Protection Trusts

(If couple resides in a Community Property State)

SPOUSE 1 SPOUSE 2

COMMUNITY PROPERTY TRUST (in asset protection state)

* May offer creditor protection in asset protection state.

* Step-up basis is more well assured than with JEST - see Zaritsky/Blattmachr articles.

* Deduct your next trip to Alaska to discuss this with Doug Blattmachr.

** See “Tax Planning with Consensual Community Property: Alaska’s New Community Property Law (written by Zaritsky/Blattmachr/Ascher) at:

http://www.jstor.org/stable/20782170?seq=1#page_scan_tab_contents

Arizona  New Mexico California  Texas Idaho  Washington Louisiana  Wisconsin Nevada

NOTE: Alaska and Tennessee are opt-in community property states that give both parties the option to make their property community property under a trust that can protect from creditors and enable all assets to receive a new fair market value date of death income tax basis if one spouse dies.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 48 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Provisions to Consider for the Revocable Trust of an Older Client 1. Repay children for expenses they incur for the parent’s benefit.

I recognize that there may be times where one or more of my children would advance monies or incur expenses on my behalf, such as if I were incapacitated or if I were unreasonable in what I would provide for myself. Any such child who makes reasonable advances and incurs reasonable expenses for my benefit shall receive repayment from me as if this were a debt before the division of assets between the Trust for my children.

2. Have children agree to inherit equally, unless there is unanimous consent – to contractually prevent or discourage any child from assisting the parent in modifying their estate plan to the disadvantage of other siblings.

3. Safety latch provision to permit amendment only under controlled circumstances.

Reservation of Power/Safety Latch Provision. Except as provided below I expressly reserve the right, at any time and from time to time, during my lifetime, by instrument in writing delivered to the Trustee, to alter, amend, or revoke this Trust Agreement, either in whole or in part.

Notwithstanding the above, or any provision herein to the contrary, (a) immediately?, (b) upon reaching age 78?, or (c) if and when the Trustee has received notice from any one of ______, ______or ______, that there may be an issue as to my mental competency or possible undue influence, no amendment or revocation of this Trust, no change of trusteeship, and no withdrawal by me or any other person of more than $10,000 of principal in cash or other assets (unless such withdrawal is authorized by a Trustee not related to me) in a calendar month may be made unless it is documented that such amendment, revocation, or withdrawal is made by me at a time and under circumstances as to which I am of sound mind and full mental capacity and am not acting as the result of apparent undue influence as confirmed in writing by (a) any two (2) of the following individuals, JOHN SMITH, JANE SMITH and/or TOM JONES, or (b) by two (2) Specialist Physicians selected as described below in this paragraph. In the event of a dispute or uncertainty between me and an acting Trustee or Trustees with respect to my competency to make a change in trusteeship, to make a Trust Amendment, or to require payment of principal or income under this Trust Agreement, then such dispute shall be resolved by two (2) Specialist Physicians. For the purposes of this provision Specialist Physicians shall mean licensed physicians specializing and board certified in areas relating to mental competency (psychiatrists or neurologists) who are on full-time staff at a well-respected hospital within twenty (20) miles of where I reside, and are selected by the Trustee(s). If there is a dispute as to the selection of such Physicians, then the party with the power to designate successor trusteeship in the event of vacancy under Section 6.05(c) of this Agreement shall select such Physicians. Further, the exercise of any Power of Appointment by me set forth under this Agreement shall require the above confirmation as well.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 49 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Provisions to Consider for the Revocable Trust of an Older Client

4. Provision to step down as Trustee upon dementia or similar diagnosis

In the highly unlikely event that I am ever diagnosed to have dementia, Alzheimer’s disease, or any diagnosis indicating a substantial or expected decline in mental abilities with respect to a permanent long-term condition that would cause me to not be able to manage my own affairs, then my children shall become Co- Trustees of this Trust, to serve for my sole benefit during my lifetime, without the need for a specific letter from a physician that makes mention of the Trust and of my incapacity, and I will be considered to have resigned as Trustee and ineligible to serve as Trustee unless or until a subsequent amendment to the Trust is made that complies with the provisions set forth above. I desire that it will therefore be automatic that if I have a diagnosis of dementia or Alzheimer’s, no matter how minor, that my children will become the Co- Trustees of this Trust and the safety latch provision set forth in Section 2.01 shall apply.

5. Provision to require a Trustee who has reached a certain age to have an annual confirmation of good mental status by a neurologist.

6. Provision to require a Co-Trustee upon request of an adult child.

Further, any child of mine who has reached the age of thirty (30) may require that I serve as Co-Trustee with any licensed trust company chosen by such child, or by me, if I disagree with the choice made by such child. If a child of mine has required that I serve as a Co-Trustee, then the optional safety/latch provision below shall apply:

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 50 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 SHOULD EVERY ESTATE PLANNING LAWYER OFFER TO BE APPOINTED AS A TRUST PROTECTOR? By Alan Gassman and Seaver Brown

Should every estate planning lawyer offer to be appointed as a trust protector to help ensure that testamentary intent will be followed as occurred in the case of Minassian v. Rachins, 152 So. 3d 719 (Fla. 4th Dist. App. 2014)?

Executive Summary

Florida Statute Section 736.0808 allows the settlor of a trust to give a third person the sole discretionary power to amend or terminate the trust for certain specified reasons. This discretionary power is typically given to either a trustee or another individual other than the settlor. [Fla. Stat. §736.0808(3)(2008)]

The concept of a trust protector has a long and storied history. Under British Common Law, it was well-accepted procedure to appoint a trust protector who could change the terms of the trust for the benefit of some or all of the beneficiaries and, in some instances, terminate the trust altogether. One reason settlors would confer this power to amend or terminate trust provisions was to have a viable remedy to address any unforeseen events after their death, some of the most prominent of which included ambiguous trust provisions, a change in circumstances, or a change in the applicable estate tax laws. However, despite the various reasons why a trust might need to be amended, the underlying purpose has always been to effectuate the settlor's original intent.

Facts

In the case of Minassian v. Rachins, there was a dispute between the settlor's surviving spouse, acting as trustee, and his children from a prior marriage. [152 So.d 719 (Fla. 4th Dist. App. 2014). The crux of the matter dealt with a trust protector who had the sole and absolute discretion to determine and then alter provisions that were ambiguous or erroneous enough to defeat the settlor's original intent.

The law firm of GASSMAN, CROTTY & DENICOLO, P.A. has drafted this Trust Agreement and it is expected that the law firm will be available in the event of the Grantor's death or incapacity in order to help to assure that the intentions of the Grantor are followed. It is recognized that in the course of drafting and administering trust agreements there can be ambiguities, inconsistencies, and changes in circumstances which can cause inconvenience, disputes, and hardships for trustees and one or more beneficiaries. The Grantor hereby empowers the law firm of GASSMAN, CROTTY & DENICOLO, P.A., or its successor, to make changes to this Trust Agreement by providing written notice confirming such change in order to comport with the Grantor's intentions and to avoid potential uncertainty, litigation, or arbitration, provided that any such changes will be consistent with a fiduciary duty to follow the Grantor's intentions. Such power granted to the law firm of GASSMAN, CROTTY & DENICOLO, P.A. shall only apply so long as a member of the firm is a Martindale-Hubbell AV-rated and Florida board certified trust and estate lawyer who approves such action, and the exercise of such power shall be limited as to not cause loss of the federal estate tax marital deduction or the federal estate tax charitable deduction with respect to any transfer to such trust or any trust herein established. Further, no such action may be taken without having written notice of the proposed action provided to each adult beneficiary of the Trust, or to the Designated Representative of any adult beneficiary or beneficiaries who are empowered to waive and receive notice for them. Further, such power may be overridden by an action of the Trust Protectors acting under this Trust Agreement, if Trust Protectors are appointed under this instrument and empowered to make changes, and shall further be subject to the following limitations:

(a) Notwithstanding anything in this Trust Agreement to the contrary, no power exercisable hereunder shall be exercisable in any way not explicitly consented to by my spouse, if living and able to deliberate, or if my spouse, is not living or able to deliberate, then the approval of any individual named as a potential Trustee under 6.03 of this Trust Agreement (or the approval of one or more of my adult children if no individual named above or under Section 6.03 of this Agreement can deliberate and act), or in any way that would deprive the Grantor of the right to appoint how the assets held under the Trust will be devised in the event of the Grantor's death, or would disqualify any marital devise or marital or Q-TIP Trust established hereunder from qualifying for the federal estate tax marital deduction or deprive any spouse of the Grantor powers to serve as Trustee and to select successor Trusteeship to apply during said spouse's lifetime or to detrimentally affect the Grantor's surviving spouse in any material way or deprive the Grantor's spouse of rights as to Trusteeship or Trustee selection under Article Six hereof. Further, as to any trust funded by IRA, pension, or qualified plan proceeds, the Scrivener Protector shall not be empowered to add any beneficiary who is older than the Designated Beneficiary of any trust herein established as of the time of appointment or a non-individual, as defined under Internal Revenue Code Section 401(a)(9) and the regulations thereunder.

(b) The Scrivener Protector shall have no duty to monitor any trust created hereunder in order to determine whether any of the powers and discretions conferred under this instrument should be exercised. Further, a Scrivener Protector shall have no duty to keep informed as to the acts or omissions of others or to take any action to prevent or minimize loss. Any exercise or non-exercise of the powers and discretions granted to the Scrivener Protectors shall be in the sole and absolute discretion of a Scrivener Protector, and shall be binding and conclusive on all persons. A Scrivener Protector shall not be required to exercise any power or discretion granted under this instrument. Absent bad faith on the part of a Scrivener Protector, the Scrivener Protector is exonerated from any and all liability for the acts or omissions of any other fiduciary or agent thereof hereunder or arising from any exercise or non-exercise of the powers and discretions conferred under this instrument.

Further, the Scrivener Protector may appoint ______, CPA as a Special Independent Trustee with the power to distribute any and all assets of any trust herein established to one or more of the beneficiaries of this Trust or any trust herein established, provided that the only beneficiary that may receive such a distribution from any trust that has been intended to qualify for the federal estate tax marital deduction shall be my surviving spouse, and the consent from _____, ______or ______must be received before such power is provided. [THE PRECEDING SENTENCE IS INTENDED TO ENABLE THE TRUST TO BE DECANTED UNDER APPLICABLE STATE LAW]

Trust Protector Provision.

(a) The Grantor hereby appoints PAUL ACCOUNTANT, CPA and ALEX ATTORNEY, ESQUIRE as Trust Protectors hereunder. If PAUL ACCOUNTANT, CPA is unable or unwilling to serve as a Trust Protector, then ALEX ATTORNEY, ESQUIRE may choose a reputable certified public accountant who is with the CPA firm of CASH & BASIS, P.A., or any successor CPA firm thereof, and if ALEX ATTORNEY, ESQUIRE is unable or unwilling to serve as Trust Protector, then PAUL ACCOUNTANT, CPA may choose an alternate Trust Protector, who shall be a reputable licensed lawyer practicing with the law firm of GASSMAN, CROTTY & DENICOLO, P.A. or any successor law firm thereof. If neither of PAUL ACCOUNTANT, CPA nor ALEX ATTORNEY, ESQUIRE can serve as a Trust Protector, then there shall be no further Trust Protector serving or any further Trust Protector action. No trust created under this instrument is required to have a Trust Protector acting with respect to that trust. Notwithstanding any provision under this Section to the contrary, no Trust Protector who is not a U.S. citizen or permanent “green card” resident may serve so long as the United States tax rules would cause this Trust to be treated as a “foreign trust” by reason of having one or more foreign Trust Protectors and any power otherwise vested in such an individual shall be null and void from inception. Under no circumstances shall the Grantor be appointed to serve as a Trust Protector.

(b) After my death or incapacity, the Trust Protectors may, by unanimous vote, and for the sole benefit of the beneficiaries named or designated in this Agreement, as deemed appropriate by them in their absolute discretion, and with respect to any trust as to which the Trust Protector is acting, modify or amend:

(1) The trust administrative provisions relating to the identity, qualifications, succession, removal and appointment of the Trustee;

(2) The financial powers of the Trustee;

(3) The provisions relating to the identity of the contingent beneficiary of trust property;

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 53 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Trust Protectors Sample Language Continued

(4) The withdrawal rights granted under this instrument (except a withdrawal right that has already matured at the time the Trust Protector seeks to exercise the power conferred under this subparagraph);

(5) The terms of any trust created under this instrument with respect to:

(i) The purposes and events for which the Trustee may distribute trust income and principal, or withhold trust income and principal otherwise distributable, and the facts and circumstances the Trustee may take into account in making distributions, including whether the Trustee shall require the approval of an “adverse party” (as such term is defined in Internal Revenue Code Section 672 (b) and Treasury Regulation Section 1.672 (b)- (1)) before making a distribution of trust income or principal to or for the benefit of the Grantor’s spouse during the Grantor’s lifetime so that no distributions would be made to the Grantor’s spouse until one or more of the adult descendants of the Grantor authorize such a distribution;

(ii) The termination date of the trust, either by extending or shortening the termination date (but not beyond any applicable perpetuities period);

(iii) The identity of the permissible appointees under any testamentary power of appointment granted to the beneficiary for whom the trust is named;

(iv) With the consent of all Trust Protectors, and when deemed reasonably necessary by the acting Co-Trustees to avoid having Trust assets made available to creditors, divorcing spouses, or other non-beneficiaries, institutions, or to avoid causing a beneficiary to be ineligible for governmental or institutional support, or to prevent monies from being spent unwisely, to divert assets from one trust or beneficiary herein designated to another trust or beneficiary herein designated; and

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 54 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Trust Protectors Sample Language Continued

(v) Benefits payable or to be paid to any descendant of the Grantor, establishing separate shares or trusts with trust assets for one or more specified descendants of the Grantor, and providing for assets which are held under any trust herein established to be transferred to another trust established under this Agreement for the benefit of one or more descendants of the Grantor, which may include provisions which permit one or more descendants, or descendants meeting certain qualifications, to receive amounts as deemed appropriate for health, education, and maintenance.

(6) Notwithstanding anything in this Trust Agreement to the contrary, no power exercisable hereunder shall be exercisable in any way that would disqualify any marital devise or marital or Q-TIP Trust established hereunder from qualifying for the federal estate tax marital deduction. Further, as to any trust funded by IRA, pension, or qualified plan proceeds, the Trust Protectors shall not be empowered to add any beneficiary who is older than the Designated Beneficiary of any trust herein established as of the time of appointment, as defined under Internal Revenue Code Section 401(a)(9) and the regulations thereunder.

(c) It shall always require at least two Trust Protectors to take any action. Any appointment of a successor Trust Protector hereunder shall be in writing, may be made to become effective at any time or upon any event, and may be single or successive, all as specified in the instrument of appointment. The Trust Protectors may revoke any such appointment before it is accepted by the appointee, and may specify in the instrument of appointment whether it may be revoked by a subsequent Trust Protectors. In the event that two or more instruments of appointment or revocation by the same Trust Protectors exist and are inconsistent, the latest by date shall control.

(d) Any Trust Protector may resign by giving prior written notice to the Trustee. All trusts created under this instrument need not have or continue to have the same Trust Protector. The provisions of this instrument that relate to the Trust Protector shall be separately applicable to each trust held hereunder.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 55 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Trust Protectors Sample Language Continued (e) Notwithstanding any other provision of this instrument, the Trust Protector shall not participate in the exercise of a power or discretion conferred under this instrument for the direct or indirect benefit of the Trust Protector, the Trust Protector’s estate, or the creditors or either, or that would cause the Trust Protector to possess a general power of appointment with the meaning of Sections 2041 and 2514 of the Code. Further, no exercise by the Trust Protectors shall in any way be for the direct or indirect benefit of the Grantor.

(f) A Trust Protector acting from time to time, if any, on his or her own behalf and on behalf of all successor Trust Protectors, may at any time irrevocably release, renounce, suspend, cut down, or modify to a lesser extent any or all powers and discretions conferred under this instrument by a written instrument delivered to the Trustee.

(g) A Trust Protector shall have no duty to monitor any trust created hereunder in order to determine whether any of the powers and discretions conferred under this instrument should be exercised. Further, a Trust Protector shall have no duty to keep informed as to the acts or omissions of others or to take any action to prevent or minimize loss. Any exercise or non-exercise of the powers and discretions granted to the Trust Protectors shall be in the sole and absolute discretion of a Trust Protector, and shall be binding and conclusive on all persons. A Trust Protector shall not be required to exercise any power or discretion granted under this instrument. Absent bad faith on the part of a Trust Protector, the Trust Protector is exonerated from any and all liability for the acts or omissions of any other fiduciary or any beneficiary hereunder or arising from any exercise or non-exercise of the powers and discretions conferred under this instrument.

(h) The exercise of any power authorized under this Section shall require the consent of both Trust Protectors.

(i) Notwithstanding any provision herein to the contrary, unless or until such time as the Trust is taxed as a foreign trust under the Internal Revenue Code and applicable regulations, a person who is not a permanent resident or citizen of the United States, and no entity that is not a United States entity shall have the power to act as Trust Protector without unanimous consent of an acting U.S. Trust Protector or Trust Protectors, and the Trustee or Co-Trustees then serving under this Trust.

(j) The Trust Protectors acting from time to time, if any, may appoint any one or more individuals as successor Trust Protectors, but only by unanimous written approval of all of the originally named Trust Protectors. Further, by majority vote, the Trust Protectors acting at any time may appoint successor Trust Protector who meet the requirements set forth under subsection (a) above. It shall always require at least two Trust Protectors to take any action. Any appointment of a successor Trust Protector hereunder shall be in writing, may be made to become effective at any time or upon any event, and may be single or successive, all as specified in the instrument of appointment. The Trust Protectors may revoke any such appointment before it is accepted by the appointee, and may specify in the instrument of appointment whether it may be revoked by a subsequent Trust Protectors. In the event that two or more instruments of appointment or revocation by the same Trust Protectors exist and are inconsistent, the latest by date shall control.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 56 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 SPECIAL LANGUAGE FOR DISTRIBUTIONS FOR DESCENDANTS

In lieu of making cash distributions to or for the benefit of the beneficiaries, the Trustee is specifically authorized to purchase assets (including one or more residences) and hold such assets in trust for the use and benefit of any beneficiary of such separate trust for his or her health education, maintenance or support. The Trustee is further authorized to make loans to a beneficiary and to purchase assets to be used by a beneficiary as a home, or for establishing a trade or business, provided that any such expenditure or use must be related to the beneficiary's health, education, maintenance or support, and may not be in satisfaction of any legal obligation, including support obligation, of any beneficiary or Trustee.

With respect to each Trust established for a descendant of the Grantor, except for legitimate and appropriate education expenses and living expenses incurred during sincere efforts of a beneficiary to obtain an appropriate education, it is requested that distributions be limited so as to facilitate the trust principal maintaining its value once the beneficiary has been fully educated. The Grantor desires that the assets of the Trust be considered a tree, and that the income from the Trust be considered the fruit of the tree, with an objective that the tree should grow or at least maintain its size in order to allow the fruit to not be diminished in the future. The Grantor requests that the Trust be conducted so that the trust assets may grow and prosper, except to the extent that reduction thereof is necessary based upon extenuating circumstances. The Grantor, by means of example, would suggest that distributions be equivalent to what can conservatively be expected to allow for the remaining trust assets, and growth thereon, to at least keep up with inflation over time. By means of example and illustration, with reference to the economic conditions as of the date of execution of this trust, the Grantor would suggest a 4% distribution amount, taking into consideration a conservative potential investment return of 7% and a potential inflation rate of 3%. If significant portions of the trust portfolio consists of assets that appreciate in value but pay nominal or very low income, the principal may be used to satisfy the intentions described above.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 57 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 SPECIAL LANGUAGE FOR DISTRIBUTIONS FOR DESCENDANTS In rendering a decision regarding distributions to the Primary Beneficiary under subparagraph (1) of this Section 4.02(e), and in order to promote conduct acceptable by the Grantor, the Trustee may also consider, without limitation, the following:

(A) Whether or not such Primary Beneficiary is suffering from a substance abuse (including alcohol) or compulsive behavior disorder (such as a gambling problem) or is affiliated with a cult;

(B) Whether or not such Primary Beneficiary is incarcerated or a criminal trial is pending the penalty for which the Primary Beneficiary may be incarcerated;

(C) Whether or not such Primary Beneficiary is engaged in illegal activities, as determined in the sole discretion of the Trustee;

(D) Whether or not such Primary Beneficiary is gainfully employed, as determined in the sole discretion of the Trustee; provided, however, that a Primary Beneficiary need not be gainfully employed if any of the following apply:

(i) The Primary Beneficiary is a full-time student and is progressing towards the completion of a degree;

(ii) The Primary Beneficiary works at least thirty-five (35) hours per week (“full-time”), with or without compensation, in a socially useful vocation (examples of such a vocation include, but are not limited to, the fields of social work, teaching, religious service, and charitable work);

(iii) The Primary Beneficiary is either occupied on a full-time basis caring for other family members such as children or disabled or elderly relatives, or married and being the homemaker for the family, and, in either case, the Primary Beneficiary’s spouse, if any, works full-time or is unable to work full-time for medical or other reasons;

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 58 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 SPECIAL LANGUAGE FOR DISTRIBUTIONS FOR DESCENDANTS (iv) The Primary Beneficiary is employed in or pursuing a career in the fine arts (examples of such careers include, but are not limited to, careers in the fields of art, dance, music, theater and creative writing);

(v) The Primary Beneficiary is unable to work full-time for medical reasons as determined by one or more physicians, selected by the Trustee, who have an appropriate expertise and have examined the Primary Beneficiary; or

(vi) The Primary Beneficiary is unable to work full-time for such other reason as the Trustee determines to be reasonable (such as the fact that the Primary Beneficiary is actively seeking, but has not yet acquired, employment). (E) Whether or not such Primary Beneficiary is a productive member of society, as determined in the sole discretion of the Trustee;

(F) Whether or not such Primary Beneficiary has demonstrated the capability of managing his or her financial affairs, as determined in the sole discretion of the Trustee; and

(G) Whether or not such Primary Beneficiary is a safe driver as evidenced by lack of driving violations and lack of at-fault traffic accidents.

(2) Entrepreneurial and Professional Career Risk Capital. The Trustee shall take into consideration that up to ______(15% if left blank) of the value of trusts held for the primary benefit of any particular descendant of mine may be made available to facilitate entrepreneurial endeavors, credit enhancement, start up expenses for a professional or entrepreneurial endeavor, or similar uses, provided that such endeavors are based upon advice given by reputable consultants, certified public accountants, or persons well respected and successful in a particular industry, and are provided under situations where the Primary Beneficiary has shown appropriate maturity, dedication, and understands that only up to the percentage described above (15% if left blank) of total cumulative trust assets may be used during such Primary Beneficiary's life time for such endeavors.

To take into account that I believe that access to more funds or benefits than would otherwise be needed could have a significant adverse effect upon a beneficiary and the descendants and family thereof, no Primary Beneficiary will receive benefits of more than $12,000 per month, on average, for normal needs of health, education, and maintenance of such individual, unless there are extreme and extenuating circumstances, such as medical emergency or the need for significant rehabilitation or private care expenses. The $12,000 amount will be adjusted annually to take into account changes in the Consumer Price Index – All Items as determined appropriate by the corporate trustee serving, to take into account changes as the result of inflation that occurs after January 1, 2020. The $12,000 per month limitation shall only apply until a beneficiary is age forty (40), after which distributions will still be limited to what is reasonably necessary for health, education, and maintenance, taking into consideration that a beneficiary and his or her spouse may work, invest his or her own savings, and thus increase his or her standard of living. The above limitation will not apply to amounts reasonably requested for educational expenses directly paid to respected and accredited colleges and universities, living expenses of descendants of the beneficiary that are reasonable, investments in assets that may be reasonably managed in a prudent and conservative manner by a beneficiary, and the purchase of a home for a beneficiary who has reached age thirty-five (35), and has proven himself or herself as being able to be self-supporting and responsible, so long as the home is owned by the Trust and properly used by the beneficiary for personal living accommodations.

Because of my desire to confirm that this Trust will not be amended in any way that would thwart the above intention, no Trustee serving under this Trust Agreement shall agree to any amendment that would be inconsistent with the above paragraph, and if necessary, to assure that the Trust will be truly irrevocable in this regard, the Trust situs will be moved to a jurisdiction that will not permit any such amendment, or, if necessary to facilitate such intention, a foundation will be established in a jurisdiction that does not permit discretionary changes and will be a discretionary beneficiary of this Trust with legal documentation that will prevent such foundation from agreeing to any amendment that would be contrary to the above intention, with such foundation to receive reasonable funding to pay for family reunions and education for my descendants.

Notwithstanding the above, no power to consume, invade, or appropriate income or principal for a beneficiary’s “health, education, maintenance, and support” shall permit any distribution that would not be considered consistent with the term “ascertainable standard” under Florida Statute Section 736.0504 and Internal Revenue Code Sections 2041(b)(1)(A) and 2514(c)(1) so as to maintain protection from creditors and estate tax as permitted under such laws.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 60 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Marital Agreement Requirement for Children’s Trusts

After the death of the survivor of the Grantor and the Grantor’s spouse, no child of the Grantor shall receive any distribution exceeding THREE THOUSAND DOLLARS ($3,000.00) in a calendar month from any trust or trusts (cumulatively as to all trusts for the primary benefit of such a child) established for his or her benefit if such beneficiary has married and does not have a binding pre-marital or post-marital agreement in place that is deemed satisfactory by an AV rated family law specialist lawyer practicing in ______County, Florida, and an AV rated family law specialist lawyer practicing in any state or states where the applicable beneficiary and such beneficiary’s spouse reside, unless or until a post-marital agreement fulfilling the requirements set forth herein is put into place, or such marriage is annulled or ended by divorce or death of the beneficiary’s spouse. Any such marital agreement must provide for the following:

1. That such spouse will have no entitlement to any assets held in trust for the direct or indirect benefit of such beneficiary, and that assets and trust rights held by such beneficiary shall not be taken into account in the calculation of any form of alimony, support, or otherwise.

2. That any assets received as distributions from any such trust shall be considered as separate non- marital property of the beneficiary (unless or until voluntarily placed into joint names or gifted by the beneficiary to such spouse as a gift, that is not required to be made) for all purposes in the event of a divorce.

3. That any dispute under the marital agreement shall be resolved by first attempting mediation with a court approved mediator, and then by arbitration pursuant to the rules of the American Arbitration Association, subject to appeal based upon the appellate procedures of the American Arbitration Association.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 61 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 SAMPLE CLAUSE – Appoint an Offshore Foundation managed by a lawyer in a civil law jurisdiction to be a beneficiary of the Trust. Civil law would not allow “public policy” to change what a Grantor has required.

Trusts To Not Be Reformed Or Altered. It is my strong desire and binding intention that no trust herein established shall be subject to alteration or change after my death, and notwithstanding any law or exception to any law that would purport to allow any such change, and therefore upon my death a SMITH TRUST MAINTENANCE FOUNDATION shall be established in a jurisdiction that allows for the creation and maintenance of a Foundation, which jurisdictions presently include Switzerland, Lichtenstein, Bermuda and the Bahamas. Such Foundation shall have one or more of my descendants as managers, and shall provide in its charter that it will take any and all actions necessary to prevent any amendment, alteration, reformation, or change of any trust herein established. A reputable lawyer with at least twenty years’ experience and the highest rating available in the applicable jurisdiction shall also be appointed as a Foundation manager, with such lawyer’s sole duty being to assure that the Foundation is maintained, and that the Foundation will not consent to any change in any trust, as herein set forth. Such appointed lawyer shall be selected by the acting Corporate Trustee under this Trust, and may be replaced by the acting Corporate Trustee with another lawyer meeting the same requirements. Such Foundation shall be a discretionary beneficiary of each trust herein established, except for the SMITH Q-TIP GST TRUST and any SMITH Q-TIP NON- GST TRUST established under Section 4.02(c) hereof, or any trust that would need to qualify for the federal estate tax marital deduction in order to facilitate avoidance of federal estate tax upon my death.

Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 62 Such Foundation shall request and receive reasonable funds to facilitate its operation from each trust established under this Agreement, and to provide family reunions of my descendants every five (5) years based upon input from my descendants and upon such terms and conditions as are reasonably determined appropriate by the Foundation managers. The budget for each such family reunion shall not exceed $30,000.00, as inflation adjusted pursuant to Section 4.01 (g). My Trustee shall take such further actions as are necessary to assure that no trust under this Agreement can be reformed, modified, or changed in any way after my death, and in the event that such modification, reformation, or otherwise is formally recommended to a court of competent jurisdiction by an acting Corporate Trustee, or is not opposed by court action filed by such Corporate Trustee to make best efforts to avoid a reformation, modification, or change, then such Corporate Trustee shall be required to immediately resign and then replaced by alternate Eligible Corporate Trustee elected by majority vote of my descendants who are not in favor of such reformation, modification, or change, or as appointed by a court of competent jurisdiction if no such majority exists, in order to discourage any such change.

Notwithstanding the above, reformation or modification made to avoid income taxes, to avoid confiscation of Trust assets, or to avoid changes which would not impact or expand the material aspects of the dispository plan set forth under this Agreement and any Agreement herein attached, may be facilitated as and when determined appropriate by a court of competent jurisdiction where the order does not expand distributions or access to assets being given to any of my descendants, or other legal rights that descendants might otherwise have or be given to direct how Trust assets would pass, to increase compensation or expense reimbursement, or to otherwise change from what I have intended in executing and funding this Trust Agreement.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 63 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Special Language for Beneficiaries with Creditors

It is my primary intention to provide health, education, maintenance, and support benefits for my spouse under this Trust, and secondarily to provide benefits for my descendants. I understand that under Florida law a descendant’s ex-spouse, children, or even lawyers representing a descendant, may have the right to receive assets from the Trust under certain limited circumstances by reason of Florida Statute Section 736.0503(2) (hereinafter the “Exception Creditors”).

In the event that a descendant who is not the Primary Beneficiary of this Trust or any Trust herein established has circumstances whereby a distribution for an Exception Creditor may be made and the Trustee is put on notice of such circumstances, then such descendant shall be excluded as a beneficiary of this Trust and any Trust herein established that such descendant is not the Primary Beneficiary thereof. Notwithstanding anything herein to the contrary and regardless of the circumstances of such beneficiary, the preceding sentence shall not prohibit the establishment of a separate Trust pursuant to the terms of this Trust Agreement for such beneficiary if such beneficiary would be the Primary Beneficiary of such Trust, such as after the death of a previous Primary Beneficiary who was the parent of such beneficiary.

Such separate Trust established for the applicable descendant may provide that upon the applicable descendant’s death or other circumstances that the remaining Trust assets would pass back to the Trusts from which they were funded, or from any other Trust herein established.

If it is determined by order of a Court of competent jurisdiction that exclusion of the applicable descendant will result in no exposure of Trust assets to the Exception Creditors, but only if the descendant is fully divested of all beneficial interest in the Trust, then the Trustees shall take such actions as are ordered by a Court of competent jurisdiction in order to completely eliminate any potential for material withdrawal from the Trust for the benefit of the Exception Creditors described above.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 64 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 What if the Client Forgets to Sign Their Will or Changes from a Pourover Will Accidentally?

To take into account the possibility that I may not have a Pour-Over Will at the time of execution of this Trust Agreement, this document shall be considered a Last Will and Testament or Codicil to my prior Last Will and Testament, whereby the rest, remainder, or residue of the property owned by me at the time of my death, real, personal and mixed, and wherever the same may be situated, including any interest that I might have in any estate, and all property which I may acquire or become entitled to after the execution of this document, shall pour into this Trust unless a Last Will and Testament is in place which explicitly refers to this Trust. For the purposes of this Article Ten, the term "Pour-Over Will" shall mean a Last Will and Testament which, by its terms, gives, devises, or bequeaths all or a portion of the rest, remainder, or residue of the property owned by me at the time of my death to this Trust, or any trust that is revocable at the moment immediately preceding my death, of which I am a Grantor, if and to the extent executed on the same date of or after the date of execution of this Trust Agreement, from the date that this Trust began to exist.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 65 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Are you using Designated Representatives in your Trust documents?

The Florida Trust Code requires that all “qualified beneficiaries” of an irrevocable trust receive annual accountings. Despite the rule’s important goal of providing a means to monitor a trustee or trustees, it may be the least followed rule in the Florida Trust Code.

Many clients do not want beneficiaries to have access to information about an irrevocable trust they have formed. Who wants to remind young beneficiaries that they may not have to work hard or that they should not have to expect to support themselves because of a trust that was set up for estate tax or other purposes? Furthermore, why should children and grandchildren of people who have set up an irrevocable trust have the right to trust accountings when grandma and grandpa are still alive and their chosen trusted individual is handling the trust to their satisfaction?

In addition, trust accountings can be expensive to prepare. Meeting the accounting requirements of Florida Statute Section 736.08135 may entail a significant amount of analysis and detailed reporting, depending on the size and complexity of the trust. Many clients may wish to avoid the fees and costs required to prepare full annual accountings.

Fortunately, Florida law creates the opportunity for some balance between the privacy of the settlor and the interests of the beneficiaries in receiving information about the trust. Florida Statutes Section 736.0306 provides for the naming of a Designated Representative who can stand in the shoes of one or more beneficiaries for the purpose of waiving trust accounting requirements and/or receiving trust accountings and information so that there is some degree of assurance that someone is looking over the shoulder of the trustee.

It is not too late if your clients haven’t already taken advantage of the use of a Designated Representative.

Existing trusts may be reformed by court order to add a Designated Representative.

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 66 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 Designated Representative Language Designated Representatives. It is recognized that Florida Statute Section 736.0306, effective July 1, 2007, permits the appointment and service of a “Designated Representative” who can receive information and accountings that might otherwise be required to be delivered to Trust beneficiaries. Unless otherwise set forth under this paragraph, the Independent Fiduciary or Fiduciaries serving from time to time may select and alter the identification of one or more Designated Representatives to receive information and otherwise serve on behalf of one or more beneficiaries of this Trust or any trust created hereunder.

It is acknowledged that, pursuant to Florida Statute Section 736.0306, any Designated Representative chosen by the Independent Fiduciary or Fiduciaries of the Trust and not specifically named in this Trust Agreement must be a relative who is a grandparent or a descendant of a grandparent of the beneficiary, or must be the beneficiary’s spouse, or the grandparent or a descendant of a grandparent of the beneficiary’s spouse. Any Designated Representative will be held harmless and indemnified from any and all trusts herein established for any liability or obligation incurred in serving as a Designated Representative, except in the case of conduct that is clearly malicious and willful except to the extent required under applicable law. A Designated Representative or an alternate Designated Representative shall not be considered a fiduciary unless circumstances otherwise dictate. It is the Grantor’s intent to reduce expenses and responsibilities with reference to Trust reporting and accounting to beneficiaries, and the Grantor therefore requests that this Trust shall be construed and administered accordingly.

Any Designated Representative then serving may resign by giving written notice to the persons then having the authority to appoint Successor Designated Representatives and to the Trustee.

Notwithstanding the above, the Grantor, or the Grantor’s spouse if the Grantor is unable to make such decision, may replace a Designated Representative or change the successorship rules relating to Designated Representatives, provided that neither of the Grantor nor the Grantor’s spouse shall have the power to appoint any employee of the Grantor or the Grantor’s spouse, or any person considered to be related or subordinate to the Grantor or the Grantor’s spouse pursuant to Internal Revenue Code Section 672(c), consistent with Section 6.04 hereof.

In the event that this Trust Agreement does not otherwise provide for the replacement of the retiring Designated Representative, and the Independent Fiduciary or Fiduciaries request that a Designated Representative be selected, then the following persons, in the order listed, shall have the ability, by written instrument delivered to the Trustee, to appoint a Successor Designated Representative or Designated Representatives subject to any guidelines herein imposed:

(a) The retiring Designated Representative, if such Designated Representative was appointed under Section 6.15 herein; and

(b) The party or parties named in Section 6.05 above who would be empowered to appoint a Successor Trustee if this Article otherwise fails to provide for a Successor Trustee.

Friday, November 7, 2019 12:30 PM – 1:00 PM ET

Ken Crotty and Michael Lehmann

Noncash Charitable Giving – Part I

Friday, November 8, 2019 3:00 PM - 4:30 PM ET

Alan Gassman and Brandon Ketron

Creative Trust Planning to Save Taxes Under Section 199A And Otherwise

Friday, November 14, 2019 12:30 PM – 1:00 PM ET

Ken Crotty and Michael Lehmann

Noncash Charitable Giving – Part II

Wednesday, November 20, 2019 3:00 PM - 4:30 PM ET

Alan S. Gassman and Christopher J. Denicolo

Estate and Trust Planning with S Corporations After TRA 2017 - And Recent Development

Thursday, November 21, 2019 3:00 PM - 4:30 PM ET

Alan Gassman, Ken Crotty and Christopher Denicolo

Dynamic Planning with Irrevocable Trusts After Tax Relief Act of 2017

Friday, November 22, 2019 3:00 PM - 4:30 PM ET

Alan Gassman

Planning With APT's After Resnin and Cleopatra, and Other Planning Opportunities and Developments--Let My Assets Go!

[email protected] Copyright © 2019 Gassman, Crotty & Denicolo, P.A. 73 Florida Revocable Trust Debate -- Separate, TBE or JEST -- What is Best? - LISI – 10.24.19 FLORIDA REVOCABLE TRUST DEBATE – SEPARATE, TBE OR JEST – WHAT IS BEST?

A Gassman, Crotty & Denicolo, P.A. Webinar Presentation

Thursday, October 24, 2019 – 12:30-1:00 p.m. EST (30 minutes)

Christopher Denicolo [email protected]