Frequently Asked Questions

Yes, we stand behind our Trust completely. We also offer an optional Triple Guarantee that provides up to $3,000,000 per wrongful act, and requires that we periodically review your transactions and bookkeeping for accuracy and compliance with IRS regulations; review your conveyances for accuracy; and prepare annual tax returns for you as well as your Trust. If you choose this optional level of service in conjunction with your investment in a Wealth Preservation Trust, you’ll even receive our guarantee in writing, inside your Trust binder.

  • The two biggest threats to wealth are litigation and taxation. In today’s litigious society, anyone can be sued. Anyone can be faced with frivolous lawsuits and/or valid lawsuits from sexual harassment to wrongful death and from personal injury to malpractice. There’s not a question of “if”, but “when.” Business Owners especially have a 1 in 4 chance of being sued. Having said that, we’ve seen verdicts and judgments reaching a billion dollars. Therefore, a lawsuit can affect a person for their natural lifetime.
  • A lot of people are putting their assets in LLCs and Corporations for personal liability protection. They fail to realize that there’s no real protection. The “Corporate Veil” can be set aside based on the “Alter Ego” concept because hardly anyone follows the corporate formalities perfectly. Owners often co-mingle funds, or forget to draft a resolution or forget to document an annual meeting. Maybe they’ve allowed their annual registration at the state level to lapse in the past. Any of these things can lead to piercing of the corporate veil. If this happens, your assets will not be protected. A good attorney or good expert witness will find the crack in the wall and the entity will get it set aside. As a matter of fact, the IRS uses the alter ego doctrine about 80% of the time to pierce the corporate veil and get to a taxpayer’s personal assets.
  • However, this particular trust protects you against “piercing of the corporate veil” because unlike an LLC or Corporation, it’s not a statutory entity. It’s a contract governed by its own indenture. This non-grantor, irrevocable, discretionary, dual-track, spendthrift trust protects the assets from being subject to a Court “Turn-Over” Order. Neither is it subject to IRS tax liens or levies. There are no distinct owners or specific assets that can be identified. In essence, you can prevent or thwart possible litigation from reaching your business assets and your personal assets.
  • The other big benefit is that this trust can act as an indefinite tax deferral. The trust complies with Internal Revenue Code (IRC) Section 643. Any capital gains earned by the trust is excluded from the definition of income. Because it’s excluded from the definition of income, it’s allocated to Corpus. In addition to that, “other items of gross income” are allocated to corpus by way of a declaration being made by the trustee in good faith. In essence, any money remaining after deducting expenses is allocated to corpus because it’s not considered “income” for tax purposes.

Typically, anything that has to deal with administration of the trust estate, or its assets and the education and welfare of beneficiaries will be an “approved” trust expense. Anything outside of that would be excluded. If in doubt, always refer to the trust document.

A very good colleague coined the term, “The 3 F’s,” for food, fun, and fashion. Anything that can be classified in one of those three categories are clearly personal expenses and should not be paid for using money belonging to the trust.

College tuition is one approved trust expense that will be considered a taxable distribution and will need to be recorded on a K-1 and issued to the beneficiary. Repair and maintenance expenses and utilities paid on trust assets are approved trust expenses that will not trigger a taxable event. There’s usually a way to structure an event in order to avoid taxation. Proper planning in anticipation of a future event is always the key to avoiding taxation. One also has to be very careful in determining which approved trust expenses will render the trust income taxable or not taxable.

Yes, all of the income (minus approved trust expenses) is going to be taxable. It’s going to be taxable either at the trust level or at the beneficiary level. If you want to keep them both from being taxed it’s very important not to authorize a taxable distribution.

Real estate, vehicles, business interests, stocks & bonds, crypto-currency, cash, intellectual property, art collections, furnishings, and basically anything of value both tangible and intangible.  When the Trust is first established, you will sell your personal and business assets to the Trust. Since the Trust will not yet have the funds to pay for purchasing of these assets, the Trust will issue a Demands Note to the Seller of the assets. You can then take funds out of the Trust by drawing against that Demand Note, without it creating a taxable event for you. Since drawing against the Demand Note must include a small amount of started interest, that portion of the payment attributed to interest will be reported on a K-1 and will therefore be taxable to you personally.

Many trusts are established with limited liquid assets. Therefore, when a seller wants to sell assets to the trust, the trust will most likely not have the cash to pay for the assets in full. (By the way, anyone can sell assets to a trust as long as it’s a “genuine” transfer.) To answer the question by way of example, suppose a seller wants to sell a house, two cars, and a 50% interest in a business to the trust. The seller’s basis in these assets are $3 million. The seller will prepare a bill of sale, letter of conveyance, quitclaim deed, and demand note as evidence of the sale of the assets, the transfer of the assets, and a loan to the trust. Upon the signing and notarization of the documents, the trust will own the assets and owe the seller $3 million dollars, which can be repaid with interest based on the terms of the demand note which is a legally binding oan document. Anytime the holder of the demand note needs funds for an expense that is not considered a legitimate “Trust Expense”, the holder can request a payment from the Trust. They payment will reduce the amount of the demand Note by the principal amount of the payment. The payment ttyl the demand note holder will include a small amount of stated interest. While the principal being withdrawn against the demand note is not taxable to the demand note holder, the amount of interest included in the payment gets reported on a K-1 and is considered personal income that is taxable.

In many instances, we advise that the assets be sold to the trust at basis (basis being calculated by adding the purchase price of the asset, plus the cost of any improvements made to the asset, less any depreciating already taken on your taxes)  so the seller can avoid capital gains tax. However, the IRS may challenge the sale of any asset that is below fair market value where the sale occurs within three years of the death of a seller or where a gift tax return is not filed and the value of the gift exceeds the annual gift tax exclusion.

The trustee does not have to pay for the use of trust assets while conducting trust business. But, if the trustee also lives at the residence, he does have to pay a reasonable amount of rent. Beneficiaries, on the other hand, usually do not have to pay rent to the Trust.

No, a business can’t be operated through a personal trust. However, a personal trust can own passive investments. Any active participation in a business can be operated through a Business Trust, or with your normal LLC or corporation. That entity can work in conundrum with a Business Trust to provide you with better asset protecting as well as mitigating the business’s annual tax liability. The most important consideration is that the business pays a reasonable salary to the person that’s actively working in the business. A reasonable salary has to always be taken by anyone that is actively working a business, whether it’s through a Business Trust or an LLC or Corporation. You will have to take a real salary and that reasonable salary cannot be assigned to any other person or any other entity.

The Business Trust can provide services to that dental practice or that medical practice where the business has to be an LLC or corporation in which to operate by certain of a Professional Services Agreement between the entity and the Business’s Trust. The Business Trust can provide G&A services. It can lease equipment or employees. It can provide all sorts of products and services in order to generate revenue on behalf of that entity. The revenue in the Business Trust would then flow through to a Personal Trust because the Business Trust is a flow-through entity, just similar to a single member LLC.

Yes, in fact, anyone can sell an asset to a trust. The Trust would issue demand Note to the Seller of that asset.

Yes, in fact, the trust can make a loan to anyone. However, it must be a genuine loan, including a repayment schedule, interest, etc.

We market an Intellectual Property Trust. The types of income that can be deferred can be derived from the sale or use of copyrights, trademarks, business plans and patents, to name a few. Income from Consulting services is also treated as income from intellectual property by the IRS.

Income from licensing the software program will be passive income and could be conveyed to the trust. However, as stated before, income earned from active participation in a business will be subject to payroll or self-employment taxes to some degree.

Yes, the trust is issued an employer identification number because it’s a non-grantor trust, which is considered a separate entity. Therefore, it will have a set of financials including an income statement and balance sheet.  To secure loans, the trustee can also pledge the assets as collateral as the trustee holds the legal title to the assets.

No, generally income not subject to federal taxes is not subject to state taxes. In the event a transaction triggers federal tax, then state tax will apply as well.

The Personal Trust and the Intellectual Property Trust can be utilized in just about every situation where there is passive income to protect the assets owned by the Trust and prevent them from being taken through judgments, liens, levies, our government the same time, the Personal Trust and the Intellectual Property Trust would mitigate tax liability by 50% or more on the passive income earned by the Trust and could defer that tax liability in perpetuity. The combination of a Business Trust and a Personal Trust can also work in many instances where there is active business income to provide similar benefits. Which Trust you’ll need  all just a matter of planning and structure.

This trust helps you to leave a legacy as it will continue to exist from one generation to the next. The Trust will terminate and pay taxes twenty-one years after the death of the last beneficiary named in the registry of beneficiaries. As long as each Successor Trustee continues to add beneficiaries from one generation to the next, this trust will continue.