ULTRA TRUST™ – What’s a Trust?
A “TRUST” is nothing more than a “CONTRACT.”
- The purpose of a TRUST is to create an “Artificial Legal Person” to protect, hold, and manage your private wealth for the benefit of your heirs.
- As in any contract, someone must initiate the contract (Grantor or Trustee).
- The contract (trust agreement) must specify the who, what, where, when, why, and other conditions.
- Finally, the contract is for the benefit of someone or something (beneficiaries: wife, children, grandchildren, church, other charitable organizations, etc.)
The concept of a trust was first used in Anglo Saxon times and is contractual arrangement whereby property is transferred from one person (The Grantor) to another person or corporate body (The Trustee) to hold the property for the benefit of a specified list or class of persons (The Beneficiaries).
Although a trust can be created solely by verbal agreement it is normal for a written document to be prepared which evidences the creation of the trust (the Trust Deed), sets out the terms and conditions upon which the trust assets are held by the Trustees and outlines the rights of the Beneficiaries. In essence, a trust is not dissimilar to a will except that assets are transferred to trustees during lifetime rather than those assets being transferred to executors on death. The trust deed is analogous to the deed of will.
There are three elements to the “trust” document:
1. The “Grantor”
The person with the money or assets. The owner of the asset(s). The grantor’s motivation is to get asset(s) out of his name for either some or all of the following:
- Asset protection/wealth preservation
- Reduce potential frivolous lawsuits
- Elimination of the “probate jail process” (see definition, below)
- Elimination of estate taxes
- To gain some tax benefit or some other tax deferral benefit
If the “Grantor” initiates the trust (contract), it’s called a “Grantor Trust,” otherwise it’s called a “Non-Grantor Trust.”
If the “Grantor” wants to retain certain control over his asset(s), it’s called a “Revocable Trust” otherwise, it’s an “Irrevocable Trust.”
Revocable / Irrevocable has significant asset protection and tax differences.
“Revocable,” is like the kid next door that brings the ball to play basketball with the other kids. Everything is fine, as long as he makes the rules, and he makes the rules as he goes along. If you don’t agree, he takes the ball and goes home. Ball game over.
#Living Trusts are outright dangerous.
The Living Trust can destroy your estate in the event of a lawsuit, serious illness, or elderly care. One name given to a “revocable” trust is the “Living Trust.” The sole purpose of the Revocable Living Trust is to “eliminate the probate process.”
- Assets in a trust, avoids probate
- Assets NOT in a trust goes to probate with or without a will
The living Trust is outright dangerous for asset protection, wealth preservation, and estate tax elimination. It’s obsolete for assets greater than $675,000. With the Living Trust the owner of the assets retains significant power over his wealth and will NOT insulate assets from the lawsuit explosion. There’s absolutely no tax benefit, no asset protection and no wealth preservation benefits with the “Living Trust.” I DO NOT RECOMMEND THE “LIVING TRUST.” if you have one, reconsider your financial goals. (See my final word about trusts, below)
Personally, I think the “Living Trust” is a sham perpetrated on you by shameless professionals out to extract more than just one fee. Don’t just walk, run!!
Various tax proposals are being bandied about, including House Ways and Means Chairman Bill Archer who says that he’s “pushing” to “g r a d u a l l y phaseout” the death tax within the next 10 years. “Death by itself should not trigger a tax” says Chairman Archer. Currently, estate taxes vary from 37% to 55%. Only Japan has a higher rate of 70%. Germany takes a maximum of 40%, while Australia and Canada, take nothing.
When you add-up your federal, state, probate, legal fees, accounting fees, appraisal fees, administrative and executor fees, and etc. fees, ……. it could easily cost you 70 to 80% of your estate. You can avoid these unwanted results with the Ultra Trust™ or the Medallion Trust™.
NOTE: The new 2001 tax PHASE-IN for estate taxes, changes absolutely nothing. The estate tax is the only voluntary tax. The new laws have added confusion. You can avoid the voluntary estate tax by simply engineering an irrevocable trust.
2. The “Trustee”
The trustee is the guy who manages your trust assets. Great care should be taken in your selection of your trustee.
The trustee is bound by the trust document (contract) and he has a duty to protect trust assets for the beneficiaries. The independent trustee manages, holds legal title to trust assets, and exercises independent control.
The trustee can be your lawyer (worst person you would ever want to trust), your accountant, best friend, or any-one you trust who is not a relative by blood or marriage. You may have more than one trustee. I usually recommend two trustees in all cases of $500,000 or more.
#Accountability of trustee
The law imposes strict obligations and rules on trustees including a duty to account for any benefits the trustee may have gained directly or indirectly from a trust. This goes beyond fraudulent abuse of position by a trustee.
There is a basic rule that a trustee may not derive any advantage directly or indirectly from a trust unless expressly permitted by the trust, for example, where he is a professional trustee and the trust provides specifically for a right to make reasonable charges for services. However, full disclosure of the basis and amount of charges is required.
The trustee of an “Irrevocable Trust” has sole discretion over trust assets. Your selection of your trustee must be a carefully planned decision.
The significant item to remember is that an “Irrevocable Trust” gets the assets completely out of your (Grantor’s) name and in return you get complete asset protection, elimination of probate, elimination of estate or inheritance taxes, in certain cases a tax deduction for the assets contributed to the trust, and finally, under certain conditions other uncommon tax benefits not otherwise available.
Examples of irrevocable trusts are: the Ultra Trust® the Medallion Trust® the Vertex Trust® the Charitable Remainder Trust, the Charitable Lead Trust.
#Duty of trustee is to obey trust document for benefit of beneficiaries
The most important rule relating to the duties of a trustee is that requiring them to obey the directions in the trust deed both with regard to the interests of the beneficiaries (i.e. who is entitled to what) and with regard to the administration of the trust (managing the trust property). Trustees are also subject to very strict standards as to the way in which their powers and discretions may be exercised.
Fiduciary relationship of trustee
The courts regard a trust as creating a special relationship which places serious and onerous obligations on the trustees. Thus the law regards the special “Fiduciary” relationship of a trust as imposing stringent duties and liabilities on the person in whom confidence is placed – the trustees – in order to prevent possible abuse of that confidence. A trustee is therefore subject to the following rules:
A. The Trustee can have no private advantage
A trustee is not permitted to use or deal with trust property for private direct or indirect advantage. If necessary the court will hold him personally liable to account for any profits made in breach of this obligation
B. The Trustee must have the best interests of the beneficiaries
Trustees must exercise all their powers in the best interests of the beneficiaries of the trust.
C. The Trustee must act prudently and is under fiduciary duty to do so
Whether or not a trustee is remunerated he must act prudently in the management of trust property and will be liable for breach of trust if, by failing to exercise proper care, the trust fund suffers loss. In the case of a professional the standard of care which the law imposes is higher. Failure to exercise the requisite level of care will constitute a breach of trust for which the trustee will be liable to compensate the beneficiaries. This duty can extend to supervising the activities of a company in which the trustees hold a controlling interest.
In cases of substantial assets, you may add one other safety measure, “the Trust Protector.” The trust protector’s sole function is to hire and fire trustees, at will and without explanation.
The beneficiaries is the reason for your trust (contract).
Your beneficiaries are the guys that will enjoy the benefits of your trust assets. They include, wives, children, grandchildren, charitable organizations of every color and variety.
The length of your beneficiaries is unlimited. Beneficiaries could include the original grantor, but that would be self defeating. Generally, trusts are irrevocable. The grantor gives-up his assets to gain asset protection, elimination of probate, elimination of estate taxes, and gain certain uncommon tax advantages. Any degree of control by the grantor will render the trust revocable and subject to court discretion.
The period of time of the trust depends on the selection of your trusts legal jurisdiction. Most states and countries have rules against “perpetuities.” That’s to say, that your trust must have an end. Selection of your trust’s Jurisdiction in the United States or outside the United States depends on the degree of risk to be assumed by you. Foreign Asset Protection Trusts (FAPT) are significantly stronger than domestic trusts. Judgments are generally not enforceable outside the United States.
The trust document (contract) can be as little as three pages and as long as fifty pounds of paper. The more complicated you make it, the more complicated it is to administer. Simplicity is the key.
Trust assets may include, your personal residence, your investment account, other real estate, your business, limited only by your valuable assets you wish to contribute to your trust.
The trust generally obtains a federal identification number and files it’s own tax return. Distributions to beneficiaries, may or may not be taxable, depends on the nature of the underlying assets.
Finally, a trust may be a business, however it’s difficult for others to do business with you, since the trust is really a “private contract” between the grantor, the trustee, and your beneficiaries. Your business partners would more likely ask for a complete copy of the trust agreement and they would have their attorney look it over. As a consequence, most will not do business with a trust, but they will do business with other recognized legal entities such as a Limited Liability Company, Corporation, Partnership, etc. for which the trust may own.
Find out the Advantages Of A Trust Fund
FINAL WORD ABOUT TRUSTS
Before you implement your trust, be absolutely certain that you understand these facts:
A trust is a form of ownership, which is controlled and managed by your designated “independent” trustee, that completely separates responsibility and control of trust assets from your benefits of ownership (you no longer own or control your assets). The IRS recognizes numerous types of trusts and other legal arrangements commonly used for wealth preservation and legal protection against potential lawsuits, elimination of probate, and elimination of estate taxes. The independent trustee, manages the trust, holds legal title to trust assets, and must exercise independent control, anything short of the above facts is pure toilet paper. ALL trust income is taxable to either the trust, beneficiaries of the trust, or the taxpayer unless it’s specifically exempted by the Internal Revenue Code (IRC).