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Trusts

Overview
The entity known as a trust will be essential in creating various strategies for accomplishing asset protection, estate planning, and privacy benefits. This chapter will provide a background for understanding how these techniques work and how a trust will be a part of your overall plan. The legal arrangement, known as a trust, has been around for at least several hundred years. Every trust has certain essential characteristics. A trust has one or more trustees, who are responsible for administering and carrying out the terms of the trust. The beneficiaries are those who are entitled to trust income or principle either currently or at some time in the future.

A trust is typically in the form of a written trust agreement between the settlor, the person creating the trust, and the trustee. The written trust agreement provides that the settlor will transfer certain assets to the trustee and the trustee will hold those assets for the benefit of the named beneficiaries. (The terms “trustor” or “grantor” are used interchangeably with the term “settlor.”)

Until recently, trusts were used almost exclusively by the wealthiest families to maintain privacy and to pass their wealth to succeeding generations. The privacy benefits were particularly important. Grandpa Robber Baron had no desire to allow the muckraking newspapers and the antagonistic public to know exactly what he owned and how much he was worth. Grandpa was savvy enough to know that revealing the details of his fortune was not good for business and wasn’t smart politics. The Vanderbilts, Whitneys, Rockefellers, and Carnegies created trusts which have now successfully shielded from public scrutiny the family wealth of five or more generations.

But it is no longer only the wealthy who are attracted to the powerful benefits offered by a properly designed trust. Now, those with equity in the family home or some savings put away for retirement or college are using trusts as an essential ingredient in their asset protection and estate plans.

Trusts are extremely flexible in form and almost any asset protection and estate planning goal can be accomplished by an attorney who is knowledgeable and experienced in this field. Using creative trust strategies, the planning opportunities for achieving tax savings and asset protection advantages are unlimited. The following examples will provide you with an overview of some of the techniques that can be used to achieve particular objectives in a variety of circumstances.

New Asset Protection with Trusts

Public opinion, policy and the law in general is now favorable to asset protection planning as long as the planning is not intended to defraud creditors or violate existing laws against Fraudulent Transfers.

Based on these new laws and advances in technique, trusts can be designed which combine the best features of domestic and offshore arrangements within a single trust. All of your assets can be held within the trust–but governed by special terms appropriate for that asset.

For example, your trust may be designed to hold your home, interests in an LLC, accounts receivable, and your savings and brokerage accounts. This trust should contain specific language to:

Protect the residence while preserving the tax benefits associated with the home (mortgage interest, property taxes, avoidance of gain in sale;
Protect the LLC (or FLP) interests from charging order or foreclosure;
Protect the accounts receivable or other business assets with an equity strippng strategy;
Protect the savings and brokerage accounts with one of many available options-depending upon your current and anticipated needs and liability concerns;
Create the degree of privacy that you wish to accomplish; and
Provide the traditional estate planning features of a living trust as well as advanced estate tax savings measures if needed.
An additional feature which may be valuable permits a migration of the trust to a more favorable jurisdiction – domestic or foreign-when and if necessary. In the right situation, this provision can be used to force any future plaintiff to proceed with a lawsuit against you in a string of unfriendly foreign jurisdictions to which the trust has continuously migrated. For example, under normalcircumstances, the trust exists and is governed by whatever domestic law we choose. But, if circumstances warrant, we can convert all or a portion of the trust or it’s assets into an offshore trust or LLC- legally protected and effectively out of reach. A plaintiff attempting to litigate in a foreign country, such as the Cook Islands would be faced with nearly impossible hurdles, subject only to local Fraudulent Transfer rules and the applicable Statutes of Limitations

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