Frequently Asked Questions

Frequently Asked Questions About Trusts.

Financial and Wealth Management for all - Frequently Asked QuestionsWhat is a Trust?

A Trust is simply an agreement between two or more people or entities.

The parties involved are the Grantor (sometimes referred to as Settler) who places an item with another party, the Trustee, to be held “in trust” for the benefit of the Grantor or another party called the Beneficiary.

The agreement is between the “active” parties, the Grantor and Trustee, and the Beneficiary is a “passive” party, meaning they usually do not have any say as to the operation of the Trust. Trusts are usually set up as “revocable” or “irrevocable”.

A “revocable” type of trust can be terminated at any time if the Grantor desires, provided it is written into the body of the agreement.  Some types of trust arrangements can be controlled by the Beneficiaries, but these are very narrow in scope.

An “irrevocable” type is where the Grantor gives up all rights to the trust assets and direction thereof. These are used in forward looking estate planning or “special needs/purpose” situations, such as philanthropic or gifting arrangements.

Why do I need a Trust?

A trust can give you privacy and flexibility in your estate plan. If you die or become incapacitated and you have acquired some assets and/or land holdings (real estate) that would have to be sold to settle your estate and you don’t have a Will or Trust in place, someone would have to petition the court for representation of the estate, then submit to the court for approval of anything they attempt to do with the assets of the estate. Even with a well-defined Will, this can involve some time and expense for the appointed representative. Then there is the chance that the Will might be contested and on top of all this the whole thing is open to public record! If you are fortunate enough to have acquired a sizable estate, do you or your heirs really want the world to know what they just inherited?  A Trust can avoid this because it is not recorded like a Will has to be. It is a private contract, it is under different state laws or statutes, no courts, judges, or attorneys need be involved to officiate the transference of assets.

A knowledgeable Estate Planning attorney can be consulted in the beginning to set up a Trust, to make sure what you want to accomplish will follow the trust laws of your jurisdiction.

Who should be Trustee?

This is probably the hardest question to answer for many people.  If you choose a person to fill the seat, they should be mature enough to be responsible for someone else’s property. They should be mature enough to honor your privacy and above all they need to be available to perform their duties when necessary.  A corporate entity that specializes in Trusts can accomplish these requirements in good order, because the corporation is a constant participant, meaning it doesn’t die, get sick, or end up in jail.

How does a Land Trust differ from other kinds of Trusts?

A Land Trust is used specifically for real estate and only a few states have statutes on the books to separate it from the more common “life estate” or personal property trust. It is used to hold legal title of the property “in trust” for the named Beneficiaries of the Land Trust. The beneficial interest is considered personal property and can therefore be transferred to others without transferring title to the property, this keeps your business private and avoids Ancillary Probate if you have real estate in other than your state of domicile.

Florida has probably some of the most progressive laws on the books pertaining to Land Trusts, protecting both the Trustee and the Beneficiaries from litigation against the property unless they were acting with negligence in some direct manner pertaining to the property.

What is an IRA Trust?

This is a “personal property trust” that is used in conjunction with a Self-Directed IRA, either traditional or Roth, held by a “third party administrator” or custodian other than a bank, credit union, or brokerage house. The IRA Trust is established as an investment vehicle to invest in from the self-directed account. By doing so you now have “checkbook control” of your money, through your Trustee, for faster access to deals that won’t wait until “Monday”.

 The Self Directed account is the Beneficiary of the IRA Trust

The Self Directed Roth IRA is probably the greatest asset in your wealth building arsenal. The after tax money can grow exponentially and be distributed tax free.  This is a very powerful wealth building tool considering the multitude of ways that you can create yields of 10% – 100% ROI.

Are there taxes owed on trusts?

It depends on what the Trust is set up for. Real Estate has local property tax assessments. Transfer of title incurs documentary stamps. A trust that has an interest bearing account will get a Form 1099. A trust operating a business will file a Form 1041 and distributions to the beneficiaries are with a Form K-1, a line entry only, no info about the source, thus privacy.

What about investing offshore, is it safe?

Investing your money in other countries requires a bit more research than your average CD or mutual fund in your home country. If the target country has a stable or growing economy and stable government that caters to foreign investors then the next step is to research the investment and the operators or management.

Usually the risk is higher if higher returns are promised and the governmental oversight or regulations may be less intense than in your country. Unless you will be living there most of the time, buying real estate for investment is usually a crap shoot. Many countries now have stricter reporting requirements for their citizens with foreign accounts which can be unknowingly transgressed with severe penalties if you don’t keep up to date with new information releases.    A well qualified professional in your jurisdiction is a justified expense.

How do I avoid Probate?

Avoiding Probate is not complicated. A properly drafted Trust can be your ticket to a peaceful night’s sleep.

Case in point: A couple, their second marriage, inherited a house from one spouse’s relative. The other spouse had two children, both grown and married with children. So, depending in which jurisdiction the first heir lives, there are at least six heirs in addition to the spouse of the receiving heir who is the only name on title to the property.  Do you see where this is going? If the first heir dies then that heir’s spouse, the first set of children and their children all have an equal share of the proceeds from the sale of the house, through Probate Court, when they all sign off on it .   What if one of the heirs doesn’t want to?  Now, if the first heir creates a Land Trust and designates who the beneficiaries are before accepting the property, then the Trustee can sell the property when needed and distribute the proceeds as directed without contest.  Remember, it is the Trustee who is listed in public records as the owner, not the heirs.

Are Trusts considered Asset Protection?

It is a good start. A Trust offers anonymity of ownership, what some opportunists look for when choosing a victim to pillage. A Trust can offer some protection from liability if there is an action against the Trust asset. Putting assets into a Trust in anticipation of or to avoid pending litigation can be reversed if discovered. LLC’s, LLP’s, and corporations are state sanctioned entities with the names and ssn’s on display for all to see. A Trust is not recorded, you don’t need anyone’s permission to create one so your privacy is maintained. The only paper trail is the title or registration of the previous owner to the Trustee.  If your jurisdiction is based on English Common Law, a Court of Equity(Chancery Court) would give you relief or defense, as the case may be, if the trust is constructed properly.  Civil Law jurisdictions may or not have “tested” trust laws in their courts, so be aware of what type of arrangement is accepted in your country.

Can Trustees and Beneficiaries be changed or removed?

Yes! It is all in how the document is written. If you choose a person as Trustee, a Successor Trustee and/or Alternate Trustee can be listed as well as Beneficiaries.  The Beneficial Interest is personal property and can pass on to your heirs or assigned through sale or trade. Only in a revocable Trust can Beneficiaries be involuntarily removed. Unless someone knows they are a Beneficiary of a Trust I don’t think there would be any complaint.  Again, whatever is written in the document is what guides all parties involved in accordance with any statutes enacted by the appropriate jurisdictions.

If you wish to discuss your wealth management and protection needs, get in touch with us via our email form or telephone us. The details can be found at our Contact Us page.

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