Situs Shopping: Does it matter?

Presenter: Alice RokahrDate:February, 2011

2

Two Important Observations

A Legacy Trust can be funded with a relatively small portion of the client’s total wealth and remain as just that part for a legacy or part of an overall strategy. Planning now lets the client take advantage of:

– The GST exemption amount to maximize transfer tax savings

– The gift tax annual exclusion amount if the client wants to make additional future gifts to the trust

A Legacy Trust does not have to continue in perpetuity

– Because assets in a Legacy Trust are not subject to transfer taxes, there are significant transfer tax benefits even if the grantor wants the trust to last only two or three generations

– Trust protectors or persons with special powers can terminate the trust when desirable

3

Reasons to Use a Legacy Trust State - Overview

Flexibility

– In adapting to changing circumstances– In investing the trust’s assets– In administering the trust

Creditor Protection

Confidentiality/Privacy

Tax Reasons

No Time Limitations

4

Advantages of Alaska, Delaware and South DakotaSome of the advantages of setting up a trust in Alaska, Delaware or South Dakota include:

Repeal of Rule Against Perpetuities (RAP) enabling Multi-Generational Planning

1

Greater Customization Afforded by Trust Laws2

Flexible Total Return Unitrust Statutes3

No State Income Tax 5

Trust-friendly Judiciary and Legislature6

Heightened Confidentiality7

Flexible Directed Trust Statutes4

5

Flexibility with Changes in Circumstances

Legacy Trusts provide greater flexibility to deal with future changes in circumstances through the use of:

– Trust protectors to address various concerns of Grantor(s) / Investment advisors / Distribution advisors

– Special trustees and Appointment committees for various items of special interest to the family situation (Education committee)

– Statutory provisions allow modification and amendments to the trust so it can evolve with the changing circumstances and needs of the family, while still carrying out the original purposes for which the trust was created

6

Trust Protector Powers

Modify or amend:– the trust to achieve favorable tax results or to take advantage of changes in

the law– the terms of a power of appointment– the trust to take advantage of favorable laws on distribution, administration

or restraints on alienation Increase/decrease the interest of a beneficiary Remove and appoint any of the other fiduciaries Terminate the trust Veto or direct distributions from the trust Change the situs or governing law Appoint successor trust protector(s) Advise the trustee on matters concerning the beneficiaries Interpret the terms of the trust Provide direction on notices to qualified beneficiaries A trust protector can be given broad discretion with respect to the exercise of

any of these powers, and decisions made in the exercise of that discretion are non-reviewable and binding on all interested parties, to the greatest extent permitted by law

A Trust Protector may be given the power to:

7

Trust Protector Powers

Although there are many powers available, the attorney will want to utilize only those powers that are necessary to carry out the terms of the trust.

– The standard guiding a trust protector’s actions is what is in the best interests of the trust

A trustee who acts at the direction of a Trust Protector has no liability

Additional issues that need to be addressed prior to drafting are

1. The scope of authority of each party (trustee, adviser, trust protector, etc.) needs to be clearly defined

2. A given power should not be shared unless there is an appropriate tie-breaking mechanism

3. Provisions explaining due diligence and responsibilities to beneficiaries who lack decision-making authority should be clearly outlined

8

Flexibile Asset Management

THE TYPES OF ASSETS UNDER MANAGEMENT:

– Concentrated holdings in real estate or in a closely-held business

– Obtains secondary benefit from reviews by Business or Real Estate Advisory Groups within Wells Fargo

– Assets with little liquidity

– Intangibles and other specialty assets

MANAGEMENT OF THE ASSETS

– Ability for the trustor to draft provisions overriding the restrictions of the Prudent Investor Act or the Uniform Principal and Income Act

– Ability to work with outside Investment Manager or Family office

9

Trust ProtectorMay modify and

amend trust, terminate trust, provide

direction, veto or direct distributions,

etc.

Flexibility Examples

Legacy Trust alignment with Closely Held Business interests

Legacy Trust

Wells Fargo, as trustee

Co-TrusteeMay participate in decision making

together with other trustees, so decision making is balanced

across a group

Special Trustee

May be assigned duties or

responsibilities with respect to specific assets or issues

Family EntitiesTrust may hold interests in

family entities such as LLCs, partnerships and

corporations. The family may retain control by retaining

voting or managing interests outside the trust, or appointing

a trust protector or special committee to vote those

interests

10

Flexibility Example

Directed Trust alignment with Closely Held Business interests

Distribution Committee

Acts as outlined in the trust and directs the trustee on

timing and amounts of discretionary distributions

to beneficiaries

Trust Protector Co-TrusteeSpecial Trustee

Investment Committee

May direct investments, vote proxies and select

investment advisors, managers and delegate

powers to them

Other Special or Advisory

CommitteesComplete other duties and

responsibilities as delegated by the Grantor

TRUSTEETRUSTEE

11

Flexibility in Administration

GREATER FLEXIBILITY IN THE ADMINISTRATION OF THE TRUST:

– Decanting power (Create new trust to take advantage of statutory changes)

– Conversion to/from a unitrust– Equitable power to adjust when necessary to balance needs of

income and remainder beneficiaries– Ability to follow grantor’s direction regarding the type and

amount of information given to a beneficiary– Grantor has unlimited discretion in establishing the trust

investment policy– Greater direction in the amount of information provided to

beneficiaries vs. Uninform Trust Code requirements

12

The beneficiaries of the Trust have enhanced creditor protection.

A spendthrift provision is a material provision of the trust

A beneficiary with a discretionary interest has no property right that creditors can “reach”

Courts cannot force a trustee to exercise its discretion to pay a creditor

Courts cannot force beneficiary to exercise a power of appointment

The trustee can still pay an expense directly on behalf of a beneficiary of a trust which directs support or mandatory distributions

Actions against the trustee must be brought in the jurisdiction of trust situs

A court review of trustee decisions for a discretionary trust limited to dishonesty, improper motive, or for failure to act when the trustee had a duty to do so

If the trustee’s distribution power is not limited by an ascertainable standard, the beneficiary’s interest is neither a property interest nor does it give anyone an enforceable right

13

Flexibility in Administration

Greater flexibility in the administration of the trust:

– Decanting power (Create new trust to take advantage of statutory changes)

– Conversion to/from a unitrust

– Equitable power to adjust when necessary to balance needs of income and remainder beneficiaries

– Ability to deviate from the rules of the Uniform Principal & Income Act

– Ability to follow grantor’s direction regarding the type and amount of information given to a beneficiary

– Grantor has unlimited discretion in establishing the trust investment policy

14

Top Reasons Confidentiality and Privacy

– The grantor may restrict beneficiaries’ rights to be informed of their interests

– No court supervision

– Documents are typically sealed when courts have to become involved

No state income tax

– Dynasty trust states do not tax trust income that is accumulated for future distribution, thus maximizing the assets ability to grow

No limitation on the term of the trust (Rule Against Perpetuities eliminated)

– This provides maximum flexibility because the trust can remain in existence for as long as you want it to

15

Optional Planning Models

Leg-up Model

Restricted Payment Model

Philanthropic Model

Retirement Model

Family Values Model

Family Bank Model

Your Legacy Trust can be designed to address the goals and values most important to you! Different models can be utilized to merge the management of your wealth with your values and goals. You are in charge and can implement as few or as many goals as you desire.

Imagination is the only limitation to the creativity you can implement in a multi-generational trust.

16

Comprehensive Trust Services

The Wells Fargo Legacy Trust Group can help you with every stage of the trust’s lifecycle.

We analyze your current situation, evaluate financial and non-financial resources, review your current estate plan in conjunction with your other professional advisors, and quantify long-term legacy goals

Assessment and Review

At your discretion, we work closely with your other professional advisors as they prepare your estate plan; then we assist with implementation, including the transfer of assets to the trust in the state of your choice

Preparation and Transfer

We establish the tax status of your trust, determine your investment objectives and begin the administration of your trust; we have professionals to manage non-financial assets as part of your legacy trust

Establishing Your Trust

We provide detailed record keeping, comprehensive administration and reporting, collection of interest and dividends, calculation of gains, losses, income and deductions, tax preparation and audit support, and periodic account review

Ongoing Services

17

Contact Information

For more information, help with a COI or client meeting call

Paul R. Griffith, SBS Manager, (605) 575-4938

Alice L. Rokahr, Sr. Trust Administrator, (605) 575-7412

Jennifer L. Sheets, Sr. Trust Administrator, (605) 575-6412

John Amalfitano, Trust Adminstrator, (302) 765-5660

Or visit the intranet site on WealthNet:

http://wmg.wellsfargo.com/wmg_intranet/Products_Services/TrustEstate/LegacyTrust/index.htm

18