Providing Affordable On-Shore Tax Advantaged Asset Protection

FREQUENTLY ASKED QUESTIONS ABOUT TRUSTS

WHERE DO TRUSTS COME FROM? Answer

WHAT IS A TRUST? Answer

WHY A TRUST? Answer

WHAT IS THE TRUSTEE? Answer

WHAT KIND OF TRUSTS ARE THERE? Answer

WHAT ARE BENEFICIARIES? Answer

WHO CAN BE THE BENEFICIARY(IES)? Answer

WHAT IS THE INDENTURE? Answer

IS IT IMPORTANT THAT THE TRUST BE IRREVOCABLE? Answer

IS A TRUST THE SAME AS A WILL? Answer

WHAT ARE THE BENEFITS OF A TRUST? Answer

CAN A TRUST OPERATE A BUSINESS? Answer

WHAT IS THE SINGLE GREATEST CONCERN PLAGUING WEALTHY INDIVIDUALS AND BUSINESSES TODAY? Answer

IS THERE AN EFFECTIVE LEGAL SOLUTION TO THIS CONCERN? Answer

WHAT IS ASSET PROTECTION PLANNING? Answer

SHOULD MY BANK SET UP MY TRUST AND BE THE TRUSTEE? Answer

SHOULD AN ATTORNEY HELP SET UP THE TRUST? Answer

I CARRY SIGNIFICANT LIABILITY INSURANCE COVERAGE - WHY SHOULD I BE INTERESTED IN ASSET PROTECTION? Answer

I ALREADY HAVE A LIVING TRUST. DOESN'T THIS PROTECT MY ASSETS? Answer

HOW DOES A TRUST PROTECT ME FROM LAW SUITS? Answer

WHY CAN'T I JUST HIDE MY MONEY IN A FOREIGN ACCOUNT? Answer

IS THIS ALL LEGAL? Answer

CAN ASSET PROTECTION WORK IF I AM CURRENTLY IN LITIGATION? Answer

CAN CREDITORS SEIZE TRUST PROPERTY TO SATISFY PERSONAL DEBT? Answer

HOW LONG BEFORE OUR LEGISLATURE LIMITS THE POWERS OF THESE TRUSTS? Answer

CAN YOU ELABORATE ON HOW A TRUST CAN HELP AN INDIVIDUAL REDUCE HIS TAXABLE LIABILITY? Answer

WHAT IF I GET SUED? WHAT HAPPENS TO THE TRUST ASSETS? Answer

CAN THE TRUST BE SUED? Answer

CAN THE TRUST SUE OTHERS AS WELL? Answer

WHAT IF I SHOULD GO BANKRUPT? Answer

WHAT IF I SHOULD GET A DIVORCE? Answer

CAN ARTIFICIAL ENTITIES HOLD THE POSITIONS, GRANTOR/CREATOR, TRUSTEE, AND BENEFICIARY? Answer

WHAT IS A TRUST CERTIFICATE (TC)? Answer

IS THERE A NEED FOR A WILL IF EVERYTHING IS IN A TRUST? Answer

HOW DO MY HEIRS TAKE OVER UPON MY DEATH? Answer

IS THIS CONSIDERED MY TRUST? Answer

DO I STILL OWN THE ASSETS IN THE TRUST? Answer

DOES THE TRUST PAY FOR MY PERSONAL THINGS? Answer

HOW DO I KEEP MINUTES FOR THE TRUST? Answer

HOW DO I EXCHANGE OWNERSHIP OF AUTOMOBILES AND HOUSES TO THE TRUST? Answer

WHAT ABOUT INCOME TAXES? DOES THE TRUST PAY INCOME TAX? Answer

WHAT KIND OF PROPERTY CAN BE CONVEYED INTO A TRUST? Answer

WHY IS A TRUST BETTER THAN A CORPORATION? Answer

WHAT IS A PURE TRUST? Answer

WHAT IS THE DIFFERENCE BETWEEN A PURE TRUST AND A LIVING TRUST? Answer

WHY HASN'T MY ATTORNEY TOLD ME ABOUT TRUSTS BEFORE? Answer

IF A TRUST IS SO GOOD, WHY DOESN'T EVERYBODY HAVE ONE? Answer

Q. WHERE DO TRUSTS COME FROM?

A. Trusts have a long history of usage. Plato used a non-profit Trust to finance his university in Greece around 400 B.C. Trusts were known in Roman law as well. In England Trusts were in use as early as the 11th century and by the 15th century were being enforced by the Courts of Chancery. Many burdens and conditions fell upon the holder of legal title to real estate. For example, the lord of the land was entitled to relief or money payments when the land was passed on to an heir of full age. The lord was also entitled to aid or tax money to pay for the marriage of the lord's daughter or the knighting of the lord's eldest son. The owner of the land was usually prohibited from selling the land or dividing it among his children or grandchildren. If the owner of the land was convicted of a crime, he forfeited all he owned to the lord or the king, thereby leaving his family impoverished. These are some of the major restrictions. There were nearly 100 other taxes and limitations on the ownership of land. It was to avoid these restrictions that Trusts were first created in England. They were designed to avoid the application of these rigid laws by allowing the Creator to vest legal title in a Trustee on behalf of a wife, son, daughter or other person as beneficiary. They had many advantages, not the least of which was secrecy. Trusts were also used in English history to allow religious organizations to use property charitably bestowed which would otherwise not be possible due to certain restrictions against land ownership by churches and religious organizations. The English also used (and still use) Trusts to avoid probate of an estate.

Pure Trust organizations arrived in America with the colonists. The first **"Pure Trust" of record was drafted for Governor Robert Morris of the Virginia Colony, a prominent financier of the American Revolution, by the famous attorney and patriot, Patrick Henry, in 1765, 24 years before the adoption of the Constitution. Known as the North American Land Company, this Pure Trust is still in operation today, over 200 years later.

William Bingham, reputed to be the richest American when the thirteen colonies won their independence, started a Pure Trust for his vast estate in 1804. The Trust owned two million acres in Maine which sold about the time of the Civil War. Bingham, a Senator from Pennsylvania in the Second United States Congress, owned vast land holdings. The Trust was terminated by the Trustees in 1964 after some 160 years of operation. It was terminated because of the multiplication of beneficiaries (total 315) and the liquidation of assets. Throughout the years, the incomes from property and proceeds from land sales were distributed to the beneficiaries. At the time of liquidation, it had no termination date. During its period of existence it was not affected by the death of its Creator, succeeding Trustees, probate procedures, or death transfer taxes.

One of the outstanding examples of the Pure Trust is the Mesabi Trust which owns the reserves of the famous Mesabi iron deposits in Minnesota. This Trust receives the royalty payments from the iron deposits and distributes the royalties to the holders of Mesabi's certificates of beneficial interest. Following the transfer of assets from the company to a Pure Trust, Mr. Arnold Hoffmann, then president of the Mesabi Iron Company, announced in the Wall Street Journal on March 14, 1961, that a ruling by the Commissioner of the Internal Revenue declared the Trust would not constitute an association of persons taxable as a corporation. The shares of beneficial interest are traded daily on the New York Stock Exchange.

Edward H. Hines, a multimillionaire building supplier, established a $12 million Trust in 1914, and headed his business until his death in 1931. His two sons, Ralph J. and Charles, succeeded the elder Hines as Trustees of the Trust and retained Trusteeship of their father's Trust after a court fight instituted by two nieces, a sister, and a nephew sought to break the Trust by claiming the administration of the family estate had been erroneous. The court ruled that the Pure Trust was not an erroneous method of managing the assets, and was in fact, a valid and legal arrangement for the estate. Ralph J. Hines, the eldest son and head Trustee, died in 1950, and again the family assets held in the Pure Trust were not disturbed by estate and inheritance taxes. The younger brother, Charles, subsequently became the head Trustee, handling the Trust for many years. Preserved, intact, for future generations, the Edward H. Hines Lumber Company is still in operation today.

Another example of the Pure Trust used for a family estate is that of the Joseph Kennedy family. Joseph Kennedy, father of John F. Kennedy, originally established a Pure Trust to own the famous Chicago Merchandise Mart. The Kennedy family is known to maintain several other Pure Trusts for tax shelter purposes as well. One such Trust was reported in the Chicago Tribune. March 22, 1947 with the caption: "Kennedy Divides Merchandise Mart." "A Trust agreement formed several years before, in which Kennedy's wife, Rose F. Kennedy, and a long time friend and associate, John L. Ford, joined as Trustees, helped to materially distribute ownership in the 30 Million Dollar Merchandise Mart, among members of the family. It is said that many of these Trusts are domiciled in the Fiji Islands of the South Pacific."

Things have since gone well for the Kennedys. Do you think they enjoyed any tax benefits from how things were set up or were they just exceptional business managers? The below article was recently released in the Associated Press.

TUESDAY, JANUARY 27, 1998

Kennedys Sell Last Business

AP

CHICAGO, Jan. 26 -- "The Kennedy family said today that it had sold its last operating business, the Merchandise Mart in Chicago, in a $625 million deal that unloaded a substantial portion of the family's property holdings. The buyer, Vornado Realty Trust of Saddle Brook, N.J., will pay $465 million in cash, assume $50 million in debt and offer $110 million in securities. The deal also includes other properties in Chicago and in the Washington area. The Merchandise Mart, the centerpiece of the deal, was completed in 1930 by Marshall Field & Company, the retailer, and bought for $12.5 million in 1945 by Joseph P. Kennedy, the family patriarch. The sprawling, 25-story building of limestone and terra cotta is a national center for the home furnishings and design industries, and it remains one of the world's largest commercial buildings. At 4.2 million square feet, the Mart has its own ZIP code and was the world's largest building until the Pentagon was built, in the 1940's. In the deal, the Kennedy heirs will receive a stake in Vornado, one of the nation's largest real estate investment trusts. Most of the Kennedy fortune is in securities, such as stocks and bonds".

William Waldorf Astor created a Fifty Million Dollar Trust estate by a conveyance to Trustees, recorded in New York, August 15, 1991, thereby saving his heirs several million dollars which would have gone for probate costs and death taxes had the estate been distributed by the court instead of Trustees.

The Rockefeller family has used various kinds of Trusts as a means of maximizing privacy. Before his death in 1937, it is reported that John D. Rockefeller tucked much of his fortune into about seventy Trusts for his descendants. This vast web of individual and group funds represent assets of considerably more then One Billion Dollars. Nelson A. Rockefeller and his generation are believed to have reduced their personal holdings by the creation of still more Trusts for their own grandchildren and great grandchildren. It has been reported to one source that there are "well over 100 and perhaps 250 Individual Rockefeller Trusts". Many of these Trusts are known to be Pure Trusts placing the funds beyond the reach of the high cost of probate.

H.L. Hunt, the Texas oil billionaire, is reported to have paid $75,000 for the setting up of the first Hunt family Pure Trust. Hunt then created at least twenty-five additional Trusts many of which seem to follow the names of the Hunt family members as follows:

1. Ruth Ray Hunt Trust Estate - This Trust owns a large percentage of the Hunt Oil Company, estimated to be worth in excess of One Billion Dollars.

2. Caroline Hunt Sands Trust Estate - This Trust is estimated to be worth at least One Hundred Million Dollars.

3. Ray Lee Hunt Trust Estate - This Trust bought the Jefferson Dallas Hotel in downtown Dallas, Texas. Ray Hunt called the purchase by his family's Trust an excellent investment according to the Dallas Morning News.

4. Nelson Bunker Hunt Trust Estate.

5. Ruth Jane Hunt Trust Estate

6. Helen Hunt Krelling Trust Estate

7. Swanee Hunt Trust Estate

8. Hassie Hunt Trust - This Trust is involved in the new exploratory oil drilling efforts in the Permian Basin of West Texas and Southwestern New Mexico.

Some persons who claim to have been close to the Hunt family estimate that there may be as many as 200 Hunt family Trusts now in existence. The death of H.L. Hunt has not affected any of these Trust estates. The family has successfully arranged their affairs so as to increase the estate generation after generation rather than see the estate cut to shreds by the high costs of probate.

Even Ronald Reagan has established such a Trust. Created in 1966, the "Ronald Reagan Trust" has enabled him to enjoy sizable tax advantages. While maintaining a magnificent living standard, Mr. Reagan has, in some years of Trust operation, been free of tax obligations.

These are but a few of the many family estates that are preserved generation after generation through the use of the Pure Trust organization.

 

Q. WHAT IS A TRUST? 

A. A trust is a three party contract, a private legal agreement. The Trust is based upon the "Indenture", which expresses the agreement between a person, (Grantor/Creator), who places assets in a Trust, and the (Trustee), an individual entrusted with, the protection, management and ultimate distribution of the (Trust Corpus) assets for the persons, (Beneficiaries), entitled to benefit from the assets and/or income held under the terms of the indenture.

 

Q. WHY A TRUST? 

A. There are various reasons for considering a trust. Asset protection, Business organization, Protection from liability, Avoidance of probate, Relief from high personal income taxes to name a few.

 

Q. WHAT KIND OF TRUSTS ARE THERE? 

A. Black's Law 6ed. lists more than 80 different and distinct types of trusts that are legally recognized and acknowledged.

 

Q. WHAT IS THE TRUSTEE? 

A. The Trustee is the person into whose control the assets have been-transferred. It is the duty of the Trustee to ensure that the instructions of the indenture are carried out and the beneficiaries' interests protected.

 

Q. WHAT ARE BENEFICIARIES? 

A. A Beneficiary is any person or persons or any other legal entity, including another Trust, that has rights to future beneficial distributions according to the terms of the Trust Indenture.

 

Q. WHO CAN BE THE BENEFICIARY(IES)? 

A. Anyone may be the beneficiary of a trust. That includes children, nieces, nephews, grandchildren, a partnership, corporation, charitable or non-profit organization or trust. The fact is that any "person" living or artificial may be the beneficiary of a trust.

 

Q. WHAT IS THE INDENTURE? 

A. An agreement between the Grantor/Creator and the Trustee that is drawn up in order to define the desires or concerns of the Grantor/Creator. While the specific instructions in the Indenture may vary greatly from case to case, the necessary features are:

• Naming of the Trustee.
• Defining the terms and conditions under which the Trustee can be removed or resign.
• Defining the Trustee's powers and restrictions and responsibilities.
• Describing the assets or initial Trust Property
• Naming the Beneficiaries.
• Naming of the Grantor/Creator, the person who conveys the initial assets to the Trust Corpus.

 

Q. IS IT IMPORTANT THAT THE TRUST BE IRREVOCABLE?

A. ABSOLUTELY !! A revocable Trust is one in which the Creator can change its mind and cancel the contract, thereby taking back all assets placed into the Trust. As a result, a revocable Trust provides no protection of the estate from future claims against the Creator. Say, for example, that for no reason at all, someone sued you, and due to inexperience, lack of knowledge on your part, or perhaps even incompetent legal advice, a judgment is obtained against you personally. In the case of a revocable Trust the judgment creditor could force you to revoke the Trust to allow access to assets to satisfy the judgment regardless of how the judgment was obtained. Since the purpose of the Trust is to preserve and enlarge the estate, you would not want this type of attack to diminish the assets of the Trust.

In addition, if you revoke the Trust and the assets return to you, there is no gain in probate savings. In some jurisdictions, even if you die before the Trust expires, the asset value of the revocable Trust is placed in your estate for probate. Under federal law, the value of the revocable Trust is placed in your estate for federal estate tax purposes.

To maximize the benefits of a Trust it should be irrevocable.

To obtain the maximum benefits from a Trust, It should last for at least twenty-five years. There is no "rule against perpetuities" for Pure Trusts, since the Constitution says that there can be no legislating of contracts. However, contracts must have a "time certain" for performance, so a contract can't go on forever. For this reason a Pure Trust has a renewable term provision that is usually included as a part of the Trust document.

 

Q. IS A TRUST THE SAME AS A WILL?

A. A trust is quite different from a will in that a will is a letter to the Court providing instructions for assets to be distributed after a death. A Trust is a contract which contains instructions (the indenture) on how assets are to be handled while the Grantor is alive. At the death of the Grantor, the minutes of the Trust delineate what, if anything, is to be done and when, and how. A trust serves as a substitute that is far superior to a will.

 

Q. WHAT ARE THE BENEFITS OF A TRUST? 

A. The proper use of the proper trust allows one to :  

• Preserve and protect assets
• Defer, or eliminate estate tax liability
• Increase opportunities for accumulation of wealth and estate growth
• Isolate assets from litigation and liens
• Create a family estate plan that will work for generations
• Privacy
• Avoid lawsuit & judgment losses
• Enjoy Privacy in business