Video Transcript Below
Introduction
00:00:00
Francisco Sirvent: Well, good afternoon, everybody. We’ll get started in just a minute. Looks like we’ve got lots of people joining. That’s awesome. You guys are welcome to keep your videos on and I’ll say hello. I have no problem if you want to turn the video off and eat your lunch or snack or whatever you’re doing. You won’t offend me whatsoever. So, if you can find a way to do that, you’re welcome to.
All right, welcome everybody. Everyone’s here to learn about advanced tax and trust laws and all the crazy boring things I deal with all the time. I’m sure you’re just as excited as I am.
We decided to host a series of these webinars for the rest of this year. You’ll see information about that from the firm. We’re just going to be picking apart little topics we get a lot of questions on, things we hear people are concerned about, and even stuff we see in the news—what’s happening in the world and how it affects things.
Format and Expectations
00:04:31
Francisco Sirvent: We’ll be bringing these to you guys the rest of this year from myself, from my partner Michelle, and from Karmi, who’s our certified financial planner. This is our first one that I wanted to kick off with—some information I really wanted to share on a bigger scale and get some education out about it.
I’ll probably go about 30 or 40 minutes to lay this out. I am recording this so that we can also share it with people who couldn’t be here today. If you know anybody who would like a copy, let us know—we’re happy to share.
I’ve turned off everybody’s microphones so I don’t get feedback and everyone can hear me clearly. But you can send in chat messages. I’ll monitor those. When I’m done with the content, I’ll open it up for Q&A. So, write down your questions as we go, drop them in the chat, and we’ll have time at the end.
Why This Topic Now
00:05:30
Francisco Sirvent: Hopefully this information should be relatively new. We don’t teach a lot on these topics because they don’t affect all of our clients.
I remember, as a young estate planning lawyer, one of my mentors told me something I’ve never forgotten: “Over time, as your clients grow in wealth, you’ll see new problems develop. The issues you face as a young lawyer will change as your clients’ net worth grows.”
Over the last few years, we’ve definitely seen that. More and more of our clients are reaching $2, $3, $5 million or more in personal net worth. That’s why we’re bringing out new kinds of strategies. They’re not new to the world—they’re just new to many of our clients.
Revocable Living Trust Basics
00:07:58
Francisco Sirvent: I’m not going to be talking today about your basic revocable living trust (RLT). I’m pretty sure everyone here already has one in place. You’ve created it, funded it, updated it, and it’s the foundation of your plan.
A revocable living trust is the minimum we recommend anyone have who wants to arrange their affairs properly—especially in Arizona. It keeps you out of probate court, gives your family privacy, and avoids guardianship or conservatorship if you have a medical emergency.
But there are a few common misunderstandings:
- It’s revocable. That means you can change it anytime. It’s flexible, easy to update, and no one’s looking over your shoulder.
- No asset protection or tax benefits. Because it’s revocable, it doesn’t protect your assets from lawsuits, creditors, or divorces. It also doesn’t create tax strategies.
- Distributions are vulnerable. When you pass away, the trust distributes assets directly to beneficiaries. Once that money hits their bank account, your trust no longer controls it. Creditors, divorces, or bankruptcies can all put it at risk.
The one “plus” you can add is something called a beneficiary protection trust. That keeps an inheritance protected from creditors and divorces. It’s not default—it has to be added.
When Advanced Strategies Become Relevant
00:14:03
Francisco Sirvent: So, when do these advanced strategies come into play?
Not at a specific dollar amount, but at the point where you know you’re not going to spend everything you’ve saved. You’ve got your income, your expenses, your nest egg, and then—above that—there’s money you know you’ll never touch. That’s when we look at these tools.
Historically, they were expensive and only used by the Rockefellers or Mark Zuckerbergs of the world. But now, they’re more accessible.
The two main strategies I’ll cover today are:
- Dynasty Trusts
- Family Limited Partnerships (FLPs)
Dynasty Trusts
00:18:30
Francisco Sirvent: The first one is something my industry typically calls a dynasty trust.
Earlier, I mentioned the beneficiary protection trust. That doesn’t really exist until the client passes away. You have your revocable living trust, you die, and then the inheritance goes into that beneficiary protection trust. That’s when it “springs to life.”
A dynasty trust is similar in concept, but you set it up now while you’re alive.
A couple of key things to know:
- It’s irrevocable. Once you set it up, it’s written. You can’t change it.
- It requires a separate trustee. You cannot be the trustee. It must be someone else, someone neutral.
- It has its own EIN and tax reporting. It’s a separate legal entity.
So, what is it? It’s a trust. You decide the rules. You can make it joint between you and a spouse, or individual. You set it up, appoint a trustee, and choose beneficiaries. But once you put money in, it’s a one-way ticket. It’s not coming back to you.
Your beneficiaries can be anyone you choose—spouse, kids, grandkids, etc.—but you cannot be a beneficiary.
You can put money in all at once, over time, or even wait until later. But whatever you put in, your trustee manages under the rules you set. Distributions are discretionary, not mandatory. The trustee decides when to distribute, not the beneficiaries.
Example Scenario
00:21:48
Francisco Sirvent: Let me give you an example.
Say a husband and wife have plenty for themselves—enough for emergencies and contingencies—and they know they’ll never spend a couple million dollars of their nest egg.
Husband sets up a dynasty trust for the benefit of his spouse and kids. He appoints a trustee. The trustee has discretion to make distributions when needed, but the beneficiaries can’t force distributions.
They transfer assets into the trust each year. The trust has its own EIN, so it requires tax reporting.
Why would they do this?
- Asset Protection. Once you make that gift into the dynasty trust, it’s a completed gift. It’s no longer yours, which means your creditors can’t get it. If you’re in a car accident or sued, those assets are out of reach.
- Estate Tax Benefits. Right now, the estate tax exemption is $13.9 million per person, going to $15 million next year, and it’s indexed for inflation. With a dynasty trust, if you gift $2 million into it today, that $2 million is exempt from your estate. And here’s the key: all future growth is also exempt. If it doubles to $4 million in ten years, only the original $2 million counts against your exemption.
That’s huge. If your investments grow faster than inflation—and most do—you can very quickly outgrow the exemption. A dynasty trust locks in today’s values and removes future appreciation from your estate.
Trustee Decisions and Flexibility
00:29:47
Francisco Sirvent: What does the trustee do?
The trustee manages the trust, invests the assets, and decides on distributions. If beneficiaries need money for, say, a down payment on a house, the trustee can either distribute cash or even have the trust buy the house and let them live in it. That way, the asset stays protected inside the trust.
Over decades, compounding growth means this trust can get very large. That’s why it’s so powerful: it provides protection for beneficiaries and avoids estate taxes for them as well. When they pass away, the trust assets aren’t in their estate either.
The tradeoffs? You need a neutral trustee, and you’ll have annual tax reporting. Those are the biggest hurdles. But if you can live with those, this is one of the most powerful planning tools available.
Family Limited Partnerships (FLPs)
00:34:37
Francisco Sirvent: The next strategy is the family limited partnership—or FLP.
This isn’t about running a yogurt shop with your family. FLPs have been used for decades for the purpose of managing a family’s wealth.
Here’s how it works:
- There are general partners (GPs) and limited partners (LPs).
- The GP runs everything—makes investment decisions, decides on distributions, calls all the shots.
- LPs are owners, but passive. They only receive distributions when the GP declares them.
Most people, when setting this up, are both GP and LP. For example, you and your spouse might own 1% as GPs and 99% as LPs. That way, you keep control but also start building in protection.
Why Set Up an FLP
00:38:19
Francisco Sirvent: The beauty of the FLP is in its structure:
- Asset Protection. LPs are shielded from liability. If there’s ever a lawsuit, creditors can’t seize the assets inside the partnership. All they can get is a charging order—basically the right to receive a distribution if one is declared. But the GP controls whether distributions are declared. So if a partner is in trouble, the GP can withhold distributions and reinvest instead. That keeps creditors at bay.
- Gifting Flexibility. Instead of gifting pieces of real estate, stock, or cash directly, you can gift partnership shares. Much easier. And you only gift LP shares, so the recipient gets value but no control.
How It Ties Together
00:46:37
Francisco Sirvent: Now, here’s where it gets really interesting.
Typically, you set up an FLP to hold your brokerage accounts, real estate, investments, etc. You don’t put IRAs or annuities in here.
Then, you set up a dynasty trust. Over time, you gift LP shares from the FLP into the dynasty trust. That way, your dynasty trust owns part of your family partnership.
And here’s the kicker: when you gift minority shares, the IRS allows you to apply a valuation discount. So if you gift 10% of a $10 million partnership, instead of valuing it at $1 million, you might get a 20–30% discount because it’s a minority, non-controlling interest. That means you’re using less of your lifetime exemption.
This pairing—FLP plus dynasty trust—is incredibly powerful. It protects assets, removes growth from your estate, and leverages valuation discounts.
Q&A
00:51:31
Francisco Sirvent: This is Q&A time.
D B: Hey, Francisco. I’ll ask the first question to kind of break the ice, if you’re all right with that.
Francisco Sirvent: Absolutely, man.
D B: Okay. So, I’m not highly educated on these matters, so I may ask novice questions here. What I’m focused on for me is I have some real estate. What I wanted to do in retirement—not retired yet, but when I do retire—is manage that. They’re under an LLC. I’m thinking I want to go further with that. I’m not sure the partnership thing would work well, but I’m looking to protect those assets as best as I can. Possibly do something with your suggestion on the retirement side, like the dynasty trust. That might play well for me, I’d have to investigate further with you.
But I’m also thinking: should I be creating an S-corp to manage and maintain what properties I do have? It’s not a large estate, but I’m thinking of asset protection and maybe being an employee of my own company. Are those worth looking at, or should I be more focused on what you’ve got here?
Francisco Sirvent: So, it always depends, right? One of the other webinars I’m going to do—I don’t know which date off the top of my head—will actually be more relevant for you. It’ll be a whole session just on asset protection for rental properties.
D B: Okay.
Francisco Sirvent: Residential rentals have so many well-established strategies. What I’ve covered today isn’t specifically designed for rentals.
Essentially, what I drew earlier—lots of little houses and bank accounts all feeding into a family limited partnership—for rental property owners, it looks a little different. Instead of houses and accounts, it’s all of your LLCs that hold each property, wrapped by a limited partnership on top.
D B: Okay.
Francisco Sirvent: For clients with multiple rentals, our first recommendation is:
- Get the best liability insurance policy you can.
- Start setting up LLCs to hold each property.
- If you manage them yourself, have a separate property management company.
Then, once that structure is in place, a family limited partnership comes in at the top level, holding all those LLCs.
D B: So, two-tier. Yeah, like a two-tier LLC strategy.
Francisco Sirvent: Exactly.
D B: Okay. So, maybe the wrong question for this forum—and if so, just let me know—but why wouldn’t I just use an S-corp instead of an LLC? Or is that too complicated and takes too long to answer?
Francisco Sirvent: Well, yes and no. I can give you the quick answer. LLCs can be S-corps. An S-corp isn’t a different entity. It’s just a tax election with the IRS for how you want your LLC to be treated for tax purposes.
D B: Oh, okay.
Francisco Sirvent: So, a rental real estate portfolio often doesn’t benefit much from being taxed as an S-corp. There are reasons why it may or may not make sense. But just know: you still start with an LLC, and then you decide whether you want to have it taxed as an S-corp.
D B: Got it. Cool. Thank you, sir.
Francisco Sirvent: Yeah, man, you bet.
Changing Beneficiaries in a Dynasty Trust
Francisco Sirvent: I see a question in chat: “In a dynasty trust, can you change the beneficiary?” Great question.
Yes, there are a couple of ways. You set it up and name your beneficiaries, but you can also build in two “safety valves”:
- Trust Protector. You appoint someone neutral (not you) who has the power to make changes, including potentially changing beneficiaries, if you give them that power.
- Power of Appointment. You retain the right to redirect assets at your death in a different way. There are broad powers of appointment and limited powers. Each has different tax consequences, so you have to be careful with how it’s designed.
So yes, there are ways to build in flexibility.
Keeping a Family Vacation Home in the Family
Francisco Sirvent: Another question: “How can you keep a family vacation house within the family for generations?”
Family vacation homes usually work more like a business. We’ve done some of these plans, and here’s what happens: you create a partnership or LLC, and inside the operating agreement, you spell out all the rules.
Things like:
- Who gets to use it and when.
- How repairs and upgrades are paid for.
- How capital calls are made if money is needed.
- Whether spouses can be included or if it stays strictly “bloodline only.”
That’s how you keep it in the family. You turn it into a business with rules that future generations agree to follow.
Now, in practice, these are hard to set up after the original owner passes away, because the family often can’t agree on the rules. But if you’re the buyer and you set it up during your lifetime, you can put those rules in place as part of your plan. That’s the way to do it.
Wrapping Up Q&A
Francisco Sirvent: Great questions, everyone. And remember—this might be the first time you’re hearing about dynasty trusts or family partnerships. These are high-level tools. There are a million nuances.
If you’re thinking, “This feels relevant but I don’t know how it applies to me,” then just book a quick 15-minute call with me. Most of the time, I’ll be able to tell you, “Nah, you don’t need this,” or, “Yeah, this might be worth exploring.”
None of this is about snap decisions. These are bigger moves. You want to understand the pros and cons before you do anything.
Thanks again for the questions.
Closing
01:00:46
Francisco Sirvent: None of this stuff is a snap decision. It’s a process. If you want to know if it applies to you, book a 15-minute call with me. I can usually tell you quickly if this is relevant or not. Most of the time, it’s not—but sometimes it is.
Procrastination is the enemy here. The biggest mistake people make is putting it off. So even if all you do is take a small step forward, you’ll be in a better place.
Thanks again for coming. Thanks for the questions.
Transcription ended after 01:04:06
