Asset protection via IDGTs

Traditional estate tax planning involves a marital trust and a bypass trust. The bypass trust assets are not subject to the beneficiary's creditors and its assets bypass estate tax on the beneficiary's death. That is, the post-death appreciation is not taxed. The same is true of any gift. The main difference between a testamentary bypass trust and an IDGT is the date of creation. The IDGT provides asset protection and avoids estate tax on the pre-death appreciation. So why not establish it now? Properly designed with the client as trustee and plenty of special powers, the IDGT can be as near as possible to actual ownership without being actual ownership. It should be at the heart of just about every estate plan.

The estate tax exemption is now up to $11.7 million for an individual, and $23.4 million for a couple. Most people don't need any complicated strategy to avoid estate tax.

It's an asset protection technique during the client's life.

Another great asset protection technique is get insurance. The best protection though is to not do dumb things such that your assets need to be protected from those you've harmed.

Another great asset protection technique is get insurance. The best protection though is to not do dumb things such that your assets need to be protected from those you've harmed.

Agreed.
When balanced with additional compliance costs and decreased flexibility, insurance is usually a much better option. Not always, but more often than trusts/LLCs or any other structure I see attorneys propose without taking into account the additional costs involved.
They sure do drive some decent fees for the attorney, though.
After explaining the practical cost (of which the client was unaware), they drive some decent fees for me to unwind it.

If your only tool is a hammer, every problem becomes a nail.

Unwinding an IDGT with special powers is a simple one sentence document: "I hereby exercise my power in article 3 of the XYZ trust and direct the Trustee to transfer all trust assets to Mr. Client."

While I agree that we should all avoid doing things that cause exposure to law suits and that insurance is usually a good idea, for many paranoid clients that's simply not enough.

Keep in mind that the IDGT is the same testamentary bypass trust as would otherwise be used in the decedent's estate plan. So drafting it takes a few minutes extra. Instead of passing to a testamentary bypass trust, the will or RLT passes to the IDGT. The IDGT can be initially funded with $1. So I don't see the extra set up cost as significant, unless you're dealing with a silk stocking law firm.

I do not do estate work but occasionally see the results of living trusts sold at seminars for seniors where the attorney has created an over-priced trust but relies on the client to actually transfer assets, either presently or in the future.
The unfunded trust has not achieved its purpose.
So when you say "Unwinding an IDGT with special powers is a simple one sentence document: ""I hereby exercise my power in article 3 of the XYZ trust and direct the Trustee to transfer all trust assets to Mr. Client."" I want to disagree: if assets have been transferred to the trust, unless the Trustee takes action, prepares and files deeds, notifies accounts, etc., nothing has been undone.

I don't plan on unwinding, but I try to make it relatively easy to do so. In the meantime there is asset protection. You are also correct that deeds and assignments are usually necessary to unwind a trust. To simplify matters I often title realty in SMLLCs so that transfer is a simple "I hereby assign...".

I agree with you that a lot of RLTs are sold which are a waste of money. My sense is that they are loss leaders to allow the promoter to be busy later in life doing probate.

But I disagree with your statement that the unfunded RLT has not served its purpose, except to the extent it was intended to avoid probate. (And that usually requires a lifetime of observance.) The RLT is a will substitute that will receive assets on death without disclosure to the disinherited.

My observation is that the living trust is sold to avoid probate, not create subsequent business.
The living trust should be a will substitute to the extent it has received assets.
Not clear what you mean by it "receives assets on death."
Maybe you meant "distribute assets on death"?

Well, I think we're on the same page. The decedent's will pours into the RLT, making it a will substitute. That's what I meant by receiving assets at death. The unfunded RLT is not harmful. It's usually just more complexity than necessary. A simple will downloaded from the internet will often suffice just as well as the expensive will from an attorney.

The thread was dealing with RLTs being sold, not the usual estate planning attorney thing. My comment was merely intended to convey that I've seen several untalented attorneys drum up business by lowballing fees in this arena for the purpose of later generating probate work.

BTW, probate has an overly negative reputation. The horror stories are not because of probate, they are due to poor planning and poor drafting.

This is my first experience with chatting. I quickly got addicted and went overboard. The negative reactions have caused me to apologize and stop chatting. I'll be happy to respond to a private message.