Tag: Article

What We Wish Everyone Knew About Estate Planning

Estate planning can feel like uncharted territory. Because of this, we have summarized four things that we wish everyone knew about estate planning.


1 . The earlier you plan the better.


Planning early can ease uncertainty about the future and allow for later planning opportunities that might not be available otherwise.


2. McCullough Law has solutions to complex problems.

 

We see estate plans through from the drafting stage to administration and beyond. This gives us a unique perspective on how to navigate and solve the most complex and vexing issues in estate planning. Our experience allows us to protect inheritance from divorce, lawsuits, bankruptcy; minimize contention among beneficiaries; maximize tax savings; keep assets in the family; prevent spoiling beneficiaries; and create clear custom solutions for unique situations.


3. Your trust needs to own assets for it to work properly.

 

Without any assets in it, a trust is a very expensive stack of paper. It is essential that assets be retitled or beneficiaries be updated in line with attorney recommendations for the goals and objectives of your estate plan to be successful.


4. Estate planning is never “done.”

 

Estate planning is a continual and iterative process—it should grow and change with you. Your estate plan should be reviewed regularly with an attorney to ensure that: (1) the right beneficiaries are listed; (2) proper controls on inheritance are included; (3) the right people are in charge of managing your estate when you die; (4) your estate, asset protection, and tax goals are being achieved; (5) your plan is compliant with current law; and (6) assets are titled properly.

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The Trust With Nothing In It

Imagine you want to protect an irreplaceable family heirloom. You spend countless hours researching and purchasing the best indestructible safe that money can buy. It is fireproof, waterproof, and was made with drill-resistant hard plates and high-grade steel. You feel confident this will fit your needs. However, after purchasing the safe, you keep the precious family heirloom on your kitchen counter.

 

While purchasing a safe puts you ahead of most in the “prepared” category, unless you set the lock combination, put everything you want protected inside, and lock the safe, it will do you very little good. Trusts are functionally the same.

 

Without any assets in it, a trust is a very expensive stack of paper. In contrast, a well-drafted and funded trust can do incredible things like sidestep the state’s intestate succession laws, avoid probate, minimize contention among beneficiaries, keep assets in the family, minimize legal fees, protect beneficiaries’ inheritance, etc.

 

So how do you know if your trust owns anything?

 

There are two main ways to transfer ownership of assets into your trust:

 

 

  • (1)   Transfer on Death Designations
  •  
  • Transfer on death (TOD) or pay on death (POD) designations are one way to transfer assets into your trust. This method preserves the current ownership, function, and operation of assets, only changing who is legally entitled to them upon the asset owner’s death. Examples include:

    • (a)  Trust beneficiary designations for bank accounts. This allows the account to remain the same (no change to account numbers, automatic payments, direct deposits, or Venmo) while allowing your successor trustee(s) to access the bank accounts after you die.
    • (b)  Trust beneficiary designations for retirement accounts. While listing individuals is at times preferable or required by law, listing a trust as a TOD beneficiary may allow for additional succession planning or inheritance protection.

 

  • (2)   Retitling Assets
  •  
  • Retitling assets is another way to transfer assets into your trust. This method occurs during the asset owner’s life and often requires the involvement of external institutions or parties to properly effectuate the transfer of ownership. In many states (and for many types of assets), this method is the best (or only) way to avoid probate (i.e., a court-supervised process used to settle a deceased person’s estate). Examples include:

    • (a)  Retitling real property into a trust by filing a deed with the County Recorder’s Office to transfer title.
    • (b) Retitling entity or private equity ownership into a trust by updating company records or investment paperwork.
    •  

    Retitling assets during life is essential to achieving various estate planning goals, such as avoiding probate, asset protection, and tax mitigation.

At McCullough Law, we regularly and routinely help our clients with the “strategic funding” of their trust(s), or in other words, helping ensure the correct transfer on death designations are made and/or preparing legal documents to aid in the retitling of assets. So, if you see an individual’s name (as opposed to a trust name) on a statement, deed, title, or other record of ownership, raise a red flag and contact McCullough Law.

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Could Using AI Waive Your Attorney-Client Privilege?

The legal field is in large part reactive. Case law is formed from experiences of the past. Legislation often arises after people have experienced various grievances and challenges. This reactivity often results in people making decisions and acting in a way that has unintended—and often unfavorable—legal consequences. Artificial intelligence (AI) is no exception. In United States v. Heppner, Judge Jed Rakoff of the Southern District of New York, addressed a “question of first impression nationwide” about the use of artificial intelligence (AI) and the protections afforded.

The criminal defendant in this case, Bradley Heppner, input information received from his legal counsel into Claude (an AI platform) to prepare a better defense. Such inputs by the defendant were later used by counsel in forming the defendant’s defense strategy. In determining whether such communications were covered by attorney-client privilege or the work product doctrine, Judge Rakoff noted that “[b]ecause Claude is not an attorney, that alone disposes of Heppner’s claim of privilege.” Furthermore, Judge Rakoff found that the written communication between the defendant and Claude was not protected by the work product doctrine because the defendant acted on his own in inputting information into AI. In closing his memorandum of Heppner, Judge Rakoff stated that “… AI’s novelty does not mean that its use is not subject to longstanding legal principles … .”

This case serves as an important warning to clients and attorneys of the potential unforeseen consequences of using AI. For example, application of Heppner suggests that you should be cautious in feeding legal documents to AI, sharing facts of a potential lawsuit or the advice of counsel with AI, etc., due to the risk that such actions may forfeit protections under the law and may ultimately be used as evidence against you in a court of law.

Because the legal implications of using AI are only just beginning to become known, it is important to continually exercise wisdom every time you use AI. So, the next time you use Claude, Copilot, ChatGPT, Gemini, Grok, or a myriad of other AI platforms to answer a legal question, interpret a document (including your estate planning documents), etc., remember to take a moment and think, “Would I want this plastered on the front page of The New York Times?” Better yet, ask yourself, “Would I want this used as evidence against me in a court of law?”

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The Escrow Strategy Explained

When you sell a business, the transaction may represent a lifetime of work. However, without thoughtful planning and preparation, a significant portion of the proceeds can be lost to immediate capital gains taxes.

 

At McCullough Law, we help clients structure transactions in ways that may allow them to keep more of their money working for them. One example of this is our Escrow Strategy.

1. What Is the “Escrow Strategy”?

Internal Revenue Service guidance acknowledges that when sale proceeds are placed into a properly structured escrow that is, subject to substantial legal restrictions, the seller is not recognized as having received those funds for tax purposes until the restrictions lapse1.  

In simple terms, the escrow strategy allows a seller to:
 
  • Receive a portion of sale proceeds at closing;
  • Place the remaining proceeds into a legally restricted escrow account; and
  • Defer capital gains tax on the escrowed portion until the escrow term ends.
Because the seller does not have unrestricted access to the escrowed funds, the IRS does not treat the seller as having effectively received that income.

2. How the Escrow Strategy Works

Step 1: Structure the Transaction

At closing, the purchase agreement allocates a portion of the sale price to be paid directly to the seller and a portion to be deposited into a third-party escrow account governed by a written escrow agreement.

 

The escrow must:

 

  • Serve a bona fide business purpose (e.g., securing representations, warranties, or performance obligations);
  • Impose meaningful restrictions on the seller’s access to the funds;
  • Be administered independently; and
  • Be carefully aligned with the purchase agreement.

Step 2: Invest the Escrowed Funds

At McCullough, the full pre-tax escrowed principal remains invested during the escrow term (for example, five or six years). Unlike a scenario where taxes are paid immediately and only post-tax proceeds are invested, the escrow allows the entire pre-tax amount to generate returns during the deferral period.

 

Investment earnings are typically taxable as they are received, but the principal capital gain tax remains deferred until release of the escrow funds.

Step 3: Taxation Upon Release

When the escrow term ends and restrictions lapse, the seller recognizes the deferred capital gain and pays the applicable tax at that time.

A Simple Illustration

Assume a $20 million sale:
 
  • $10 million is paid directly to the seller at closing (taxed immediately).
  • $10 million is placed into a five-year escrow.
If the seller’s capital gains rate is approximately 28.30% (federal, State of Utah, and net investment income tax combined), investing after-tax proceeds would leave about $7.17 million working. However, under a properly structured escrow, the full $10 million remains invested during the escrow term.  

At an 8.00% net annual return, that difference can translate into more than $1 million of additional earnings over five years, simply because more principal remained invested before tax.

4. How McCullough Law Helps

The escrow strategy is not a template solution. It works only when properly designed and documented. Improper structure can trigger immediate taxation under the constructive receipt or economic benefit doctrines.  

At McCullough Law, we provide attorney-structured escrow solutions that:

  • Coordinate the purchase agreement and escrow agreement;
  • Comply with IRS guidance and case law;
  • Establish legitimate business purposes for the escrow;
  • Structure meaningful restrictions to support tax deferral;
  • Work alongside your CPA and financial advisor; and
  • Oversee independent escrow administration.
If you are preparing to sell a business, the escrow strategy may allow you to balance immediate liquidity with long-term tax efficiency.  

Contact McCullough Law for more information.

1 See Rev. Rul. 77-294, Rev. Rul. 79-91, Stiles v. Commissioner, 69 T.C. 558, 569 (1978), acq., 1978-2 C.B. 3, PLR 2005210074, and IRS Publication 537.

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Donor Advised Funds

For business owners, investors, and high-net-worth individuals planning liquidity events or major charitable gifts, Donor Advised Funds (DAFs) provide one of the most tax efficient and flexible philanthropic tools available. A DAF works like a private foundation with less overhead and fewer complex management rules.

What is a Donor Advised Fund?

A DAF is an individually directed account for charitable giving. By opening a DAF account with a sponsoring public charity (e.g., Fidelity Charitable, Schwab Charitable, Vanguard Charitable, etc.) and funding it with cash, appreciated securities, or other assets, the donor receives a deduction of up to 30-60% of Adjusted Gross Income (“AGI”) and the ability to “spend” the DAF on any qualified grant or charity of their choosing in the future.

Why Choose a DAF?

DAFs combine powerful tax benefits with simplicity and control. They offer:

  • Immediate charitable deduction at fair market value (up to 60% AGI for cash, up to 30%
    for appreciated assets)
  • No capital gains tax on the sale of appreciated securities
  • Tax-free growth of assets inside the fund
  • No immediate distribution requirement for grant recommendations; DAFs can even be
    directed by future generations
  • Privacy and anonymity for gifts
  • No annual mandatory payouts, public disclosure, or excise taxes
  • Easily combine deductions or donate pre-sale stock in a liquidity event

How We Can Help You Benefit From a DAF?

DAFs are a powerful tool for tax minimization. Our firm can integrate DAFs into our clients’ advanced planning, so tax benefits are layered into their broader estate goals and plans. By planning early with an attorney, our clients unlock greater flexibility and benefits. Ultimately, tools like DAFs allow generous individuals to give on their own terms, creating lasting impact while preserving flexibility for today and tomorrow.
Contact McCullough Law today to explore how a Donor Advised Fund can enhance your tax and charitable strategies.

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Maximize Your Legacy: The Power of Non-Grantor Trusts in Modern Tax Planning

For individuals residing in high-tax jurisdictions, optimizing wealth transfer while minimizing tax liability is a constant challenge. While traditional revocable trusts help to avoid probate, they do not offer income or estate tax savings.

At McCullough Law, we counsel clients on advanced estate planning techniques, including the use of non-grantor trusts. By converting taxable income into tax-efficient legacy building, these tools can provide a powerful solution for asset protection, state income tax savings, and estate tax reduction.

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What is a Non-Grantor Trust?

A non-grantor trust is an irrevocable trust that is taxed separately from its owner (the “grantor”) and files its own tax return.

Why and How are Non-Grantor Trusts Used?

Non-grantor trusts are a premier tax and asset protection tool. Their primary benefits include:

 

  • State Income Tax Savings: By establishing a trust in a state with no income tax (e.g., Nevada), you can avoid state income tax on the trust’s income. This is especially valuable for residents of states with high taxes such as California.
  • Asset Protection: Because the assets are no longer legally owned by the grantor, they are generally protected from the grantor’s creditors or lawsuits. ●
  • Potential Estate Tax Savings: Assets gifted to a non-grantor trust have the potential to be removed from the grantor’s taxable estate. This “freezes” the recorded value of the assets for estate tax purposes, allowing future growth to pass to beneficiaries free of estate tax.
  • Additional Tax Deductions: Non-grantor trusts can claim their own $10,000 State and Local Tax (SALT) deduction, separate from the grantor’s personal deduction. They can also hold Qualified Small Business Stock (QSBS), potentially enabling “stacking” of the §1202 exclusion to save millions in capital gains taxes.

Is a Non-Grantor Trust Right for You?

Non-grantor trusts are an important consideration to an individual’s estate structure and they have the potential for significant tax savings and asset protection.

Contact McCullough Law to discuss how a non-grantor trust can be integrated into your comprehensive estate planning strategy.

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Maximize Your Business Exit with the New $15M QSBS Exclusion


The passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, has fundamentally reshaped the landscape for business founders and investors, particularly regarding Qualified Small Business Stock (QSBS). This landmark legislation enhances the existing Section 1202 of the Internal Revenue Code, offering an unprecedented opportunity to exclude up to $15,000,000 in capital gains from federal income tax upon the sale of qualifying stock.


For entrepreneurs and early-stage investors, the new law is a powerful incentive for strategic tax planning. Our law firm is positioned to help you navigate these changes and leverage the expanded QSBS benefits to ensure maximum tax efficiency in a liquidity event.

Key Expansions Under the One Big Beautiful Bill Act

The OBBBA introduces several taxpayer-favorable changes to the QSBS regime, primarily effective for eligible stock issued after July 4, 2025:

 

  • Increased Gain Exclusion Limit: The per-issuer capital gain exclusion limit has increased from $10,000,000 to the greater of $15,000,000 (indexed for inflation) or ten times the shareholder’s basis in the stock. This change offers the potential for significant additional tax savings.
  • Faster Partial Exclusions: Previously, a 100% exclusion required a five-year holding period. The new law introduces a tiered system for QSBS acquired after July 4, 2025, allowing for partial exclusions sooner:
    • 50% exclusion for stock held at least three years but less than four years.
    • 75% exclusion after four years but less than five years.
    • 100% exclusion if the stock is held for five years or longer.
  • Higher Asset Threshold: The aggregate gross asset limit for a corporation to qualify as a small business at the time of stock issuance has been raised to $75,000,000, increased from $50,000,000, thereby broadening the pool of eligible companies.

How We Can Help You Maximize This Opportunity

While the benefits of QSBS are substantial, the rules for qualification are complex and require careful planning and execution. Our legal team is well-equipped to provide critical guidance on compliance with all requirements under Section 1202 of the Internal Revenue Code.Using advanced planning strategies, such as gifting QSBS to non-grantor trusts, exclusions may be “stacked” across multiple taxpayers to maximize the total amount of gain shielded from income tax.


The changes under the OBBBA underscore the need to obtain counsel to assist with sophisticated tax planning. Do not miss out on this enhanced opportunity to protect your wealth. Contact our firm today to schedule a consultation and discuss how these new rules affect your current and future investments.

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Tax Planning for the Sale of a Business

Before you commit to sell your business, you should consult with an attorney to determine whether any of the following tax planning strategies should be implemented:

 

 

  1. Non-Grantor Trust. A non-grantor trust can be used to minimize or avoid state income tax on the sale of a business. The non-grantor trust can also help defer or avoid state tax on the growth of your investments after the sale of the business.
  2. Escrow Account. IRS rulings provide a safe and simple way to defer tax and maximize income using an escrow account. This option works well for the sale of almost any type of asset or business.
  3. QSBS Planning. The tax exemption for qualified small business stock (QSBS) might be the most generous loophole in tax law history. It allows business owners to avoid all tax on the sale of stock up to a certain amount, under certain conditions. Business owners should counsel with their attorney and other tax advisors to determine whether QSBS planning is possible.
  4. Charitable Remainder Trust. By funding a charitable remainder trust prior to the sale of a business, you can avoid capital gains tax and invest 100% of the sale proceeds allocated to the trust. This means more money is working for you and providing an income stream throughout your life. The trade-off is that when you die, the assets remaining in the trust must go to charity instead of other beneficiaries. This option does not work well with an S corporation.
  5. Donor Advised Fund. By funding a donor advised fund prior to the sale of a business, you can get a “double tax benefit.” The first tax benefit is a charitable income tax deduction. The second tax benefit is the avoidance of tax on a portion of the sale proceeds because assets are being sold by a charity (the donor advised fund) instead of the taxpayer.

 

It is important to begin your tax planning early. By planning in advance, you will have more options available to you, more time to study and understand the pros and cons of each option, and the planning will be more effective and sound.

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Are You Really Better Off with an Offshore Trust?

Better Than an Offshore Trust

There are many different opinions about the best way to protect your assets. In the end, unless those opinions are backed by actual court cases, they have little relevance. As a general rule, if an asset protection strategy is proven to work well in many court cases over many years, then it is a good strategy. In contrast, if an asset protection strategy is new and untested, it is difficult to know whether it is a good strategy or not. Furthermore, if an asset protection strategy is proven to fail in many court cases, then it is a poor strategy despite any alluring marketing materials.

 

There are law firms and trust companies that strongly favor offshore trusts and market their effectiveness in protecting assets. Unfortunately, the court cases tell a different story—that offshore trusts don’t work.

 

The cases show that a court may order the debtor to turn over money that is held in an offshore trust. Often, the debtor will refuse the court order, claiming that he cannot get the money because it is in an offshore trust that will not, and cannot, transfer the money. The court’s response is not favorable to the debtor, and the debtor will go to jail for contempt of court if they refuse to comply. Impossibility fails as a defense to contempt because “a self-created impossibility is not a defense to contempt.” As such, the debtor will go to jail until they decide to turn over the money in the offshore trust. End of story.

 

This is not a rare occurrence. A relatively fast cursory search will show case after case where this has been the result. The fact is that the courts have learned how to use contempt to defeat an offshore trust—making offshore trusts a faulty asset protection strategy.

So, based on court cases, what is a better option? Our preference is to use a third-party spendthrift trust as circumstances permit. Third-party spendthrift trusts are supported by statutory laws and court cases in all fifty states, and these laws have not changed for hundreds of years. Not all third-party spendthrift trusts are the same in quality or structure. We have spent more than 25 years designing, operating, and improving our third-party spendthrift trusts. Our primary third-party spendthrift trust is known and trademarked as “The 541 Trust ©”

Why Choose The 541 Trust®?

In addition to the case law supporting third-party spendthrift trusts, The 541 Trust has the following advantages over an offshore trust:

 

  1. It is less expensive to maintain than an offshore trust. In fact, it involves no required ongoing costs.
  2. It has much simpler IRS reporting requirements than an offshore trust.
  3. It isn’t affected by the contempt of court issue because available defenses comply with the law, rather than trying to evade the law.
  4. It is infinitely flexible and if you change your mind, assets can be transferred out of the trust, or the trust can be terminated, without tax consequences.
  5. It is easy to sell a home or another asset that is owned by The 541 Trust®.
  6. It is never taxed at a higher tax rate, and it can own your home without giving up the tax benefits of home ownership.

When we create a 541 Trust, we anticipate potential problems that may arise in the future, including but not limited to the following: What if the client gets divorced? What if the client dies leaving a surviving spouse in need of access or control of the trust? What if the client decides that they no longer want or need the trust? What if federal or state tax laws change? What if other laws change? How will this trust coordinate with the client’s other estate planning documents? For over 25 years, we have developed, refined, and integrated solutions for each of these issues into our client’s plans.

 

People deserve asset protection strategies that are supported by case law and experience. Our goal is to provide you with asset protection strategies that provide security if you are sued, declare bankruptcy, or have serious financial problems. Our law firm has the staff, staying power, and succession plan needed to provide our clients and their estate continual support.

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ING Things: What You Need to Know about Incomplete Non-grantor Trusts

What is an ING Trust?

In the world of estate planning, “ING” is more than just a suffix. It’s an acronym for Incomplete Non-Grantor (trust) and often has another letter in front of it to indicate the state under which the trust is governed—often Nevada, Delaware, Wyoming, or Alaska (NING, DING, WING, and AING, respectively). It’s a highly sophisticated, beneficial estate planning strategy that intentionally straddles the line separating grantor trusts and non-grantor trusts, offering the best of both worlds—resulting in potentially massive state tax savings—to those who successfully create and operate them.

 

This tricky trust is a delicate balancing act and can fail when not executed correctly. An Incomplete Non-Grantor trust retains the flexibility and control of a grantor trust while offering state tax savings and asset protection like a non-grantor trust.

How does an ING trust work?

It can be difficult to conceptualize these types of trusts and their benefits with definitions alone. Consider the following examples:

 

  • A Utah resident establishes a Nevada Incomplete Non-Grantor trust (“NING”) and contributes stock in a private company worth $100M. The company is sold and the proceeds are paid to the NING Trust. The client pays federal tax but no state tax, savingthe client approximately $4.5M (based on a state income tax rate of 4.5% in Utah). The trustee of the NING trust later distributes all of the sale proceeds to a Utah resident and nostate tax is due because Utah does not tax a distribution of capital gains from a non-resident trust.
  • A California resident establishes a properly structured non-grantor trust and contributes a $10M investment that produces 8% taxable income per year. Over a period of 10 years, the California income tax saved could be $1.2M. Over 20 years, the compounded savings from not paying California income tax could be over $4M. The assets of the non-grantor trust are protected from creditors and all types of liabilities against the client. The client then retires and moves to Florida where trust distributions can be received without state tax (Florida has no state income tax).

Sound too good to be true? Well, some states agree. Specifically, New York and California have cracked down on Incomplete Non-Grantor trusts by redefining grantor trusts within their state tax codes. That said, there are still some strategies we can execute to help residents of those states get the most out of their estate plan.

Should I set up an ING trust?

There are a few factors to consider with this question. First, you should understand that the most commonly attractive feature of an Incomplete Non-Grantor Trust is the state tax savings. If your state, income, or other circumstances make state income tax a concern for you, it may be beneficial to set up an ING trust.

 

Another key component to consider for a non-grantor trust is the choice of trustee. You need a trustee that meets the following criteria:

 

  • They are professional and credible so the trust will hold up if challenged
  • They won’t (and can’t) steal your money
  • They are responsive and easy to work with
  • Their fees are not excessive

Alongside the state tax benefits, you should note that ING trusts can also be useful for asset protection and general estate planning. And if your main goal is asset protection and you aren’t too concerned with state taxes, don’t worry—we have top-quality solutions for that, too.

Let us be your INGman!

While we’re certainly not the only ones who can help you create an ING trust, we’re confident that we can provide solutions and strategies of the highest caliber. In estate planning (and life in general), it can be tempting to hire the lowest bidder, but our experience has taught us that, whenit comes to protecting your assets and finding ways to save on taxes, elevated quality and extensive experience pay for themselves many times over.

 

McCullough has created hundreds of ING trusts over the past 27 years. Like the iPhone, we’re constantly on the lookout for ways to improve our trusts, and they get better over time (plus we’ll never change the shape of the charging cable!). Pursuit of that goal over nearly three decades has put us ahead on the learning curve of developing the very best trusts and the very best practices for reducing audit risk and amplifying the value that these trusts can provide.

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