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Why Gift Trusts are a Win-Win in Asset Protection and Eliminating the Estate Tax

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Gift trusts are the Swiss army knife in estate planning as they can eliminate your estate tax while also protecting your assets from lawsuits. A gift trust is a way to gift assets to another party, such as your children or grandchildren, without having to pay the estate taxes that would apply upon your death.

A trust has three types of important parties: the trustee, who manages the trust; the beneficiary, who receives funds from the trust; and the trust protector, who is a third party who cannot be either trustee or beneficiary, but who has limited powers over the trust.

Gift Trusts and The Problems with Gifting Ownership

Gift trusts can act as an ideal partner to a limited partnership (LP) or a limited liability company (LLC) for asset protection purposes. 

Sadly, we have seen the following problems with directly gifting an ownership interest in a company to a loved one rather than through a gift trust:

Death

Upon the child’s death, they can transfer their ownership interest to whomever they wish, such as a spouse or friend. You may not want this person to own a portion of your company for a host of reasons.

Divorce

If a child marries, an ex-spouse may be successful in obtaining ownership of a portion of the company in divorce proceedings.  Nothing is worse than having an in-law, who is now an out-law, owning a portion of your company.  

Taxes

If a child does not pay their income taxes, the IRS can require the company to cover the debt or seize company assets.  Remember, the IRS has powers that any other creditor does not. 

Bankruptcy

If a child files bankruptcy, a bankruptcy trustee may take control of the child’s ownership interest in the company and may attempt to force the transfer of assets or otherwise cause problems.

Disability

If a child qualifies for government aid, such as a disability or college financial aid, their interest in the company may disqualify them from government benefits.

Irrevocable Gift

The child has no obligation to give back their ownership of the company. Once the interest is gifted, they have all the rights of an owner of the company and do not have to cooperate.  Unfortunately, we have seen close relationships deteriorate and even become hostile. A gift trust allows you indirect control through the trustee and trust protector.

Minor child 

A minor child cannot legally own a portion of a company until he or she reaches eighteen years old. If your children are minors, a gift solves this problem.

Control

A common concern for parents is that when a child owns a portion of the company, they may be required to distribute income to the child. The issue is that children do not always make wise choices with money. Further, children can become dependent and feel entitled to future distributions. A gift trust allows distributions to be held in the gift trust and later distributed by the trustee rather than automatically be given to a child. This can eliminate a sense of entitlement and dependency issues with direct gifts.

Gift Trusts and Asset Protection

A gift trust is an irrevocable trust. The beneficiary must be someone other than you.  And for asset protection purposes your spouse should not be a beneficiary or trustee either. (One of the most common myths on the internet is that you may protect your assets in your gift trust and be the trustee and beneficiary. This is not true! The only trust that allows such an arrangement is a Domestic Asset Protection Trust, which is not available in all states and has inherent problems.)

Beneficiaries can include future people, such as children or grandchildren born or legally adopted after the date of implementation of the trust. No matter where our clients reside, we create the gift trust in Arizona because a trustee may also be a beneficiary, but more often is a family member or friend.  (Arizona also allows the gift trust to last up to 500 years.)

Although you cannot change the beneficiaries once the trust is implemented, trustees can be changed, thus giving you indirect control over the trust.

Intentionally Defective Grantor Trust. 

The type of gift trust we use is called an Intentionally Defective Grantor Trust. It is reported on your income taxes just like a living trust.  (It is defective in that you must still pay income taxes on the interest accrued.  However, the trustee can reimburse you for any income taxes paid if it is desirable.)  Where it differs from a living trust is that any gifts to the gift trust are not included in a client’s taxable income, thereby eliminating federal estate taxes paid on assets in the trust upon your death.  (Currently, any amount over the Federal estate and gift tax exemption is taxed at 40%.) 

The gift trust protects the beneficiary’s interest from bankruptcy, lawsuits, disability, creditors, and divorce. It protects the LLC’s or LP’s assets if the child fails to pay their income taxes, files bankruptcy or divorces.

Because you pay income taxes on the gift trust’s interest, this allows the trust to accrue more value than if the trust paid its own income taxes. For example, if you gift $10 million into the trust, which earns an interest of 5% annually, if the trust paid its own income taxes, after 30 years the trust would have a value of $24 million.

However, since you may  pay income taxes on an IDGT, in that same 30 years the gift trust would grow to a value of approximately $43 million. (The gift trust may reimburse you for any income taxes you pay too. This provides you flexibility over the years depending upon your financial circumstances.)

The Power of Discounting

The I.R.S. enables us to discount the amount of the gift of the company into the gift trust further maximizing the estate tax savings accomplished. Typically the discount is 25 – 35% of the gift. 

For example, if gifting $5 million worth of the company, only $3.75 – $3.25 million of your federal estate tax exemption is used rather than the full $5 million.  It enables you to stretch your federal estate tax exemption farther than gifting cash or securities.

Control Over Your Assets

One of the key principles to asset protection is to own little, but control everything.  As the manager of the LLC, you retain control over your assets despite gifting a portion into the gift trust. The trustee of the gift trust is only a member or limited partner and has no say over the management of the assets.

Additional Benefit of Gift Trusts

There are other benefits to a gift trust, such as freezing the gifted asset from appreciation within your taxable estate. This means that even if the initial $10 million investment grows to $43 million, the $33 million gain is NOT included in your taxable estate. 

Also, there is a power of substitution, which enables you to “swap” assets in or out of the trust, provided that the assets are of equal value. For example, if you wish to purchase a new home, which will cost $300,000 and you need cash from the gift trust. You may “swap” the cash with a promissory note or other assets. Furthermore, it is possible to borrow the gift trust’s assets for future business activities, such as real estate purchases or for a business.

Gift Trust: A Win-Win in Asset Protection

In summary, a gift trust is a win-win. It protects the assets for you and your beneficiaries. A gift trust provides the ideal partner to LLCs and limited partnerships; all while eliminating the federal estate tax. And Arizona is the ideal state to create a gift trust.

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John Skabelund’s Interview with Wealth Formula

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Qualified Personal Residence Trusts

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Privacy Policy

PRIVACY POLICY

Last updated December 27, 2023

This privacy notice for Skabelund PLLC ("we," "us," or "our"), describes how and why we might collect, store, use, and/or share ("process") your information when you use our services ("Services"), such as when you:


Visit our website at skabelundulti1.wpenginepowered.com, or any website of ours that links to this privacy notice
Engage with us in other related ways, including any sales, marketing, or events
Questions or concerns? Reading this privacy notice will help you understand your privacy rights and choices. If you do not agree with our policies and practices, please do not use our Services. If you still have any questions or concerns, please contact us at info@skabelund.com.

SUMMARY OF KEY POINTS

This summary provides key points from our privacy notice, but you can find out more details about any of these topics by clicking the link following each key point or by using our table of contents below to find the section you are looking for.

What personal information do we process? When you visit, use, or navigate our Services, we may process personal information depending on how you interact with us and the Services, the choices you make, and the products and features you use. Learn more about personal information you disclose to us.

Do we process any sensitive personal information? We do not process sensitive personal information.

Do we receive any information from third parties? We do not receive any information from third parties.

How do we process your information? We process your information to provide, improve, and administer our Services, communicate with you, for security and fraud prevention, and to comply with law. We may also process your information for other purposes with your consent. We process your information only when we have a valid legal reason to do so. Learn more about how we process your information.

In what situations and with which parties do we share personal information? We may share information in specific situations and with specific third parties. Learn more about when and with whom we share your personal information.

How do we keep your information safe? We have organizational and technical processes and procedures in place to protect your personal information. However, no electronic transmission over the internet or information storage technology can be guaranteed to be 100% secure, so we cannot promise or guarantee that hackers, cybercriminals, or other unauthorized third parties will not be able to defeat our security and improperly collect, access, steal, or modify your information. Learn more about how we keep your information safe.

What are your rights? Depending on where you are located geographically, the applicable privacy law may mean you have certain rights regarding your personal information. Learn more about your privacy rights.

How do you exercise your rights? The easiest way to exercise your rights is by submitting a data subject access request, or by contacting us. We will consider and act upon any request in accordance with applicable data protection laws.

Want to learn more about what we do with any information we collect? Review the privacy notice in full.

TABLE OF CONTENTS

  1. WHAT INFORMATION DO WE COLLECT?
  2. HOW DO WE PROCESS YOUR INFORMATION?
  3. WHEN AND WITH WHOM DO WE SHARE YOUR PERSONAL INFORMATION?
  4. HOW LONG DO WE KEEP YOUR INFORMATION?
  5. HOW DO WE KEEP YOUR INFORMATION SAFE?
  6. DO WE COLLECT INFORMATION FROM MINORS?
  7. WHAT ARE YOUR PRIVACY RIGHTS?
  8. CONTROLS FOR DO-NOT-TRACK FEATURES
  9. DO UNITED STATES RESIDENTS HAVE SPECIFIC PRIVACY RIGHTS?
  10. DO WE MAKE UPDATES TO THIS NOTICE?
  11. HOW CAN YOU CONTACT US ABOUT THIS NOTICE?
  12. HOW CAN YOU REVIEW, UPDATE, OR DELETE THE DATA WE COLLECT FROM YOU?
  13. WHAT INFORMATION DO WE COLLECT?

Personal information you disclose to us

In Short: We collect personal information that you provide to us.

We collect personal information that you voluntarily provide to us when you express an interest in obtaining information about us or our products and Services, when you participate in activities on the Services, or otherwise when you contact us.

Personal Information Provided by You. The personal information that we collect depends on the context of your interactions with us and the Services, the choices you make, and the products and features you use. The personal information we collect may include the following:
names
phone numbers
email addresses
Sensitive Information. We do not process sensitive information.

All personal information that you provide to us must be true, complete, and accurate, and you must notify us of any changes to such personal information.

Information automatically collected

In Short: Some information — such as your Internet Protocol (IP) address and/or browser and device characteristics — is collected automatically when you visit our Services.

We automatically collect certain information when you visit, use, or navigate the Services. This information does not reveal your specific identity (like your name or contact information) but may include device and usage information, such as your IP address, browser and device characteristics, operating system, language preferences, referring URLs, device name, country, location, information about how and when you use our Services, and other technical information. This information is primarily needed to maintain the security and operation of our Services, and for our internal analytics and reporting purposes.

The information we collect includes:
Device Data. We collect device data such as information about your computer, phone, tablet, or other device you use to access the Services. Depending on the device used, this device data may include information such as your IP address (or proxy server), device and application identification numbers, location, browser type, hardware model, Internet service provider and/or mobile carrier, operating system, and system configuration information.
Location Data. We collect location data such as information about your device's location, which can be either precise or imprecise. How much information we collect depends on the type and settings of the device you use to access the Services. For example, we may use GPS and other technologies to collect geolocation data that tells us your current location (based on your IP address). You can opt out of allowing us to collect this information either by refusing access to the information or by disabling your Location setting on your device. However, if you choose to opt out, you may not be able to use certain aspects of the Services.

2. HOW DO WE PROCESS YOUR INFORMATION?

In Short: We process your information to provide, improve, and administer our Services, communicate with you, for security and fraud prevention, and to comply with law. We may also process your information for other purposes with your consent.

We process your personal information for a variety of reasons, depending on how you interact with our Services, including:

To evaluate and improve our Services, products, marketing, and your experience. We may process your information when we believe it is necessary to identify usage trends, determine the effectiveness of our promotional campaigns, and to evaluate and improve our Services, products, marketing, and your experience.
To identify usage trends. We may process information about how you use our Services to better understand how they are being used so we can improve them.

3. WHEN AND WITH WHOM DO WE SHARE YOUR PERSONAL INFORMATION?

In Short: We may share information in specific situations described in this section and/or with the following third parties.

We may need to share your personal information in the following situations:
Business Transfers. We may share or transfer your information in connection with, or during negotiations of, any merger, sale of company assets, financing, or acquisition of all or a portion of our business to another company.

4. HOW LONG DO WE KEEP YOUR INFORMATION?

In Short: We keep your information for as long as necessary to fulfill the purposes outlined in this privacy notice unless otherwise required by law.

We will only keep your personal information for as long as it is necessary for the purposes set out in this privacy notice, unless a longer retention period is required or permitted by law (such as tax, accounting, or other legal requirements).

When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize such information, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.

5. HOW DO WE KEEP YOUR INFORMATION SAFE?

In Short: We aim to protect your personal information through a system of organizational and technical security measures.

We have implemented appropriate and reasonable technical and organizational security measures designed to protect the security of any personal information we process. However, despite our safeguards and efforts to secure your information, no electronic transmission over the Internet or information storage technology can be guaranteed to be 100% secure, so we cannot promise or guarantee that hackers, cybercriminals, or other unauthorized third parties will not be able to defeat our security and improperly collect, access, steal, or modify your information. Although we will do our best to protect your personal information, transmission of personal information to and from our Services is at your own risk. You should only access the Services within a secure environment.

6. DO WE COLLECT INFORMATION FROM MINORS?

In Short: We do not knowingly collect data from or market to children under 18 years of age.

We do not knowingly solicit data from or market to children under 18 years of age. By using the Services, you represent that you are at least 18 or that you are the parent or guardian of such a minor and consent to such minor dependent’s use of the Services. If we learn that personal information from users less than 18 years of age has been collected, we will deactivate the account and take reasonable measures to promptly delete such data from our records. If you become aware of any data we may have collected from children under age 18, please contact us at info@skabelund.com.

7. WHAT ARE YOUR PRIVACY RIGHTS?

In Short: You may review, change, or terminate your account at any time.

Withdrawing your consent: If we are relying on your consent to process your personal information, which may be express and/or implied consent depending on the applicable law, you have the right to withdraw your consent at any time. You can withdraw your consent at any time by contacting us by using the contact details provided in the section "HOW CAN YOU CONTACT US ABOUT THIS NOTICE?" below.

However, please note that this will not affect the lawfulness of the processing before its withdrawal nor, when applicable law allows, will it affect the processing of your personal information conducted in reliance on lawful processing grounds other than consent.

If you have questions or comments about your privacy rights, you may email us at info@skabelund.com.

8. CONTROLS FOR DO-NOT-TRACK FEATURES

Most web browsers and some mobile operating systems and mobile applications include a Do-Not-Track ("DNT") feature or setting you can activate to signal your privacy preference not to have data about your online browsing activities monitored and collected. At this stage no uniform technology standard for recognizing and implementing DNT signals has been finalized. As such, we do not currently respond to DNT browser signals or any other mechanism that automatically communicates your choice not to be tracked online. If a standard for online tracking is adopted that we must follow in the future, we will inform you about that practice in a revised version of this privacy notice.

9. DO UNITED STATES RESIDENTS HAVE SPECIFIC PRIVACY RIGHTS?

In Short: If you are a resident of California, you are granted specific rights regarding access to your personal information.

What categories of personal information do we collect?

We have collected the following categories of personal information in the past twelve (12) months:

Category Examples Collected


A. Identifiers
Contact details, such as real name, alias, postal address, telephone or mobile contact number, unique personal identifier, online identifier, Internet Protocol address, email address, and account name

NO

B. Personal information as defined in the California Customer Records statute

Name, contact information, education, employment, employment history, and financial information

NO

C. Protected classification characteristics under state or federal law
Gender and date of birth

NO

D. Commercial information
Transaction information, purchase history, financial details, and payment information

NO

E. Biometric information
Fingerprints and voiceprints

NO

F. Internet or other similar network activity
Browsing history, search history, online behavior, interest data, and interactions with our and other websites, applications, systems, and advertisements

NO

G. Geolocation data
Device location

NO

H. Audio, electronic, visual, thermal, olfactory, or similar information
Images and audio, video or call recordings created in connection with our business activities

NO

I. Professional or employment-related information
Business contact details in order to provide you our Services at a business level or job title, work history, and professional qualifications if you apply for a job with us

NO

J. Education Information
Student records and directory information

NO

K. Inferences drawn from collected personal information
Inferences drawn from any of the collected personal information listed above to create a profile or summary about, for example, an individual’s preferences and characteristics

NO

L. Sensitive personal Information

NO

We will use and retain the collected personal information as needed to provide the Services or for:
Category B - As long as the user has an account with us. We may also collect other personal information outside of these categories through instances where you interact with us in person, online, or by phone or mail in the context of:
Receiving help through our customer support channels;
Participation in customer surveys or contests; and
Facilitation in the delivery of our Services and to respond to your inquiries.
How do we use and share your personal information?

Learn about how we use your personal information in the section, "HOW DO WE PROCESS YOUR INFORMATION?"

Will your information be shared with anyone else?

We may disclose your personal information with our service providers pursuant to a written contract between us and each service provider. Learn more about how we disclose personal information to in the section, "WHEN AND WITH WHOM DO WE SHARE YOUR PERSONAL INFORMATION?"

We may use your personal information for our own business purposes, such as for undertaking internal research for technological development and demonstration. This is not considered to be "selling" of your personal information.

We have not disclosed, sold, or shared any personal information to third parties for a business or commercial purpose in the preceding twelve (12) months. We will not sell or share personal information in the future belonging to website visitors, users, and other consumers.

California Residents

California Civil Code Section 1798.83, also known as the "Shine The Light" law permits our users who are California residents to request and obtain from us, once a year and free of charge, information about categories of personal information (if any) we disclosed to third parties for direct marketing purposes and the names and addresses of all third parties with which we shared personal information in the immediately preceding calendar year. If you are a California resident and would like to make such a request, please submit your request in writing to us using the contact information provided below.

If you are under 18 years of age, reside in California, and have a registered account with the Services, you have the right to request removal of unwanted data that you publicly post on the Services. To request removal of such data, please contact us using the contact information provided below and include the email address associated with your account and a statement that you reside in California. We will make sure the data is not publicly displayed on the Services, but please be aware that the data may not be completely or comprehensively removed from all our systems (e.g., backups, etc.).

CCPA Privacy Notice

This section applies only to California residents. Under the California Consumer Privacy Act (CCPA), you have the rights listed below.

The California Code of Regulations defines a "residents" as:

(1) every individual who is in the State of California for other than a temporary or transitory purpose and
(2) every individual who is domiciled in the State of California who is outside the State of California for a temporary or transitory purpose

All other individuals are defined as "non-residents."

If this definition of "resident" applies to you, we must adhere to certain rights and obligations regarding your personal information.

Your rights with respect to your personal data

Right to request deletion of the data — Request to delete

You can ask for the deletion of your personal information. If you ask us to delete your personal information, we will respect your request and delete your personal information, subject to certain exceptions provided by law, such as (but not limited to) the exercise by another consumer of his or her right to free speech, our compliance requirements resulting from a legal obligation, or any processing that may be required to protect against illegal activities.

Right to be informed — Request to know

Depending on the circumstances, you have a right to know:
whether we collect and use your personal information;
the categories of personal information that we collect;
the purposes for which the collected personal information is used;
whether we sell or share personal information to third parties;
the categories of personal information that we sold, shared, or disclosed for a business purpose;
the categories of third parties to whom the personal information was sold, shared, or disclosed for a business purpose;
the business or commercial purpose for collecting, selling, or sharing personal information; and
the specific pieces of personal information we collected about you.
In accordance with applicable law, we are not obligated to provide or delete consumer information that is de-identified in response to a consumer request or to re-identify individual data to verify a consumer request.

Right to Non-Discrimination for the Exercise of a Consumer’s Privacy Rights

We will not discriminate against you if you exercise your privacy rights.

Right to Limit Use and Disclosure of Sensitive Personal Information

We do not process consumer's sensitive personal information.

Verification process

Upon receiving your request, we will need to verify your identity to determine you are the same person about whom we have the information in our system. These verification efforts require us to ask you to provide information so that we can match it with information you have previously provided us. For instance, depending on the type of request you submit, we may ask you to provide certain information so that we can match the information you provide with the information we already have on file, or we may contact you through a communication method (e.g., phone or email) that you have previously provided to us. We may also use other verification methods as the circumstances dictate.

We will only use personal information provided in your request to verify your identity or authority to make the request. To the extent possible, we will avoid requesting additional information from you for the purposes of verification. However, if we cannot verify your identity from the information already maintained by us, we may request that you provide additional information for the purposes of verifying your identity and for security or fraud-prevention purposes. We will delete such additionally provided information as soon as we finish verifying you.

Other privacy rights
You may object to the processing of your personal information.
You may request correction of your personal data if it is incorrect or no longer relevant, or ask to restrict the processing of the information.
You can designate an authorized agent to make a request under the CCPA on your behalf. We may deny a request from an authorized agent that does not submit proof that they have been validly authorized to act on your behalf in accordance with the CCPA.
You may request to opt out from future selling or sharing of your personal information to third parties. Upon receiving an opt-out request, we will act upon the request as soon as feasibly possible, but no later than fifteen (15) days from the date of the request submission.
To exercise these rights, you can contact us by submitting a data subject access request, by visiting https://skabelundulti1.wpenginepowered.com/contact-us/, or by referring to the contact details at the bottom of this document. If you have a complaint about how we handle your data, we would like to hear from you.

10. DO WE MAKE UPDATES TO THIS NOTICE?

In Short: Yes, we will update this notice as necessary to stay compliant with relevant laws.

We may update this privacy notice from time to time. The updated version will be indicated by an updated "Revised" date and the updated version will be effective as soon as it is accessible. If we make material changes to this privacy notice, we may notify you either by prominently posting a notice of such changes or by directly sending you a notification. We encourage you to review this privacy notice frequently to be informed of how we are protecting your information.

11. HOW CAN YOU CONTACT US ABOUT THIS NOTICE?

If you have questions or comments about this notice, you may email us at info@skabelund.com or contact us by post at:

Skabelund PLLC
1400 E. Southern Ave.
Tempe, AZ 85282
United States

12. HOW CAN YOU REVIEW, UPDATE, OR DELETE THE DATA WE COLLECT FROM YOU?

Based on the applicable laws of your country, you may have the right to request access to the personal information we collect from you, change that information, or delete it. To request to review, update, or delete your personal information, please fill out and submit a data subject access request.