In a post from a day or so ago, there was a lot of support for a post discussing the legal concept of trusts in relation to estate planning. Some bullshitter said, "... I make $1 a year and hold no assets. Take charge of your assets so no one can take them from you."
A lot of people demonstrated an interest in knowing this faggot's secrets. I'm a tax lawyer, and there are a few points that the commenter failed to express. So I'm here to provide a general education in the world of trusts.
There's too much to cover in a single post, so I'm breaking it up over 4 posts.
Those posts are as follows:
-
What is a Trust? (Part 1 of 4)
-
For what purposes do you use a Trust? (Part 2 of 4)
-
Trusts & Marriage / Trusts & Divorce (Part 3 of 4)
- The Death Tax & Trust Income Taxes (Part 4 of 4)
Before we begin, I'm going to nip this in the bud right now. There is no magic bullet. If you're presently in a marriage and you're looking for a way to hide assets in the event of a potentially impending divorce, well I'm here to tell you that you're going to have a bad time. (See Part 3 of 4).
If you're an employee working for someone else, then there's no magic way to hide your income in a trust to avoid paying income tax. (See Part 4 of 4).
My intention is to generally educate you as to what a trust is, what a trust can be used for, and what a trust likely can't do for you. For some of you, this will be super informative. For others, you're going to be disappointed to learn that there may not be a silver bullet to hide all of your shit and not pay any taxes. Anybody who tells you otherwise is trying to sell you something. And if they're a lawyer, they're likely violating a rule of professional ethics by trying to sell it to you. (See ABA Model Rule 7.3).
If you have any specific questions about how these topics might affect you or how you might benefit from them, please reach out to an estate planning lawyer near you. I am literally (I don't mean figuratively; I mean literally) incapable of answering your questions. (See Part 2 of 4).
So what is a 'Trust'?
To understand what a trust is, you have to understand how the law views property. And the first thing to grasp is the idea of property ownership. Property ownership might seem simple on the surface (either you own something or you don't, right?), but there is a lot of nuance to the idea of property ownership.
As an example, let's use the idea of a "company car," which is a situation where you work for a company and the company provides you a vehicle to use while you work for the company. Now, the company car is assigned to you. It's yours. But it isn't "yours." By which I mean, you have all the rights to use the car and to receive the benefit of driving around in it. But you likely don't have the right to repaint the car, and you certainly don't have the right to sell the car. You definitely don't have the ability to legitimately sell the car because you don't have the car's title. The car's registered title is not in your name; the car's registered title is in the company's name.
So the company car is a good example to point out the difference between "legal title" and "equitable title." As the employee, you hold equitable title to the car. The car is assigned to you. No one else gets to use it except for you. If you get pulled over, you're not going to be arrested for stealing the car because you enjoy the right to benefit from use of the car. But you do not hold legal title, meaning you don't have the right to do something like sell the car because you do not hold legal title to the car.
Right now, if you own property, like a house or a car or a bank account, chances are you hold both legal title and equitable title simultaneously. Generally, for the property you own, there is no separation between these two concepts. For example, I own a truck. I bought it. I can drive it when I want, I can lift it, I can replace the suspension, and I can slap a For Sale sign on it any time I want. I can do that because I own the truck. I hold both the legal title and equitable title to the truck.
But there's a consequence for owning both the legal and equitable title to the truck. because I own the truck, that means I can lose the truck under certain circumstances. If I defaulted on some debt that I owed to someone, they could conceivably take my truck from me and use it toward the satisfaction of that debt. They could take it from me because (1) I incurred the debt and (2) I owned both legal and equitable title to the truck.
On the other hand, instead of owning a truck, if I only had that company car to drive around in, then the guy suing me wouldn't be able to take the company car from me. Why? Because I don't own legal title to the car. Sure, I'm benefiting from the car's use and the car is in my possession; but I don't hold legal title, I only hold equitable title. For the guy suing me to be able to take the car, he would have to satisfy to the court that I (1) incurred the debt and (2) hold both legal and equitable title to the car. In this scenario, even though I did incur the debt, I don't hold both legal and equitable title; so I get to keep using the car, and the guy suing me can go piss off.
At this point, I want to point out that having a company car issued to you is just an illustration of the difference between legal and equitable title. In real life, while the company would in fact have legal title to the car, you as the employee would not hold equitable title to the car in this general scenario. It takes more than just allowing you to use the car to create equitable title.
...
A trust is created when the owner of property (holding both legal title and equitable title) gives the property to two other people and splits up the property's legal and equitable titles, giving legal title to one person and equitable title to another person. Then, the person holding legal title will have certain obligations to manage the property and to provide the benefits of the property to the person holding equitable title. Let's get the names correct here, the person holding legal title is the Trustee, and the person holding equitable title is called the Beneficiary.
So here's a classic scenario of a trust: mommy and daddy both die in an accident. mommy and daddy have a 10 year old child who survives them. when mommy and daddy died, they had $1M in cash in a bank account.
Well, the 10 year old can't be entrusted with control of the $1M. That'd be fucking stupid to leave all that money to him outright. Instead, being the smart people that they were, mommy and daddy set it up where in the event of their deaths, the $1M would go into a trust, with Auntie Ann as the Trustee, and Junior as the beneficiary. Auntie Ann would be obligated to properly manage the $1M until such a time when Junior would be capable of being responsible enough to handle it himself.
Now, the specific details of Auntie Ann's responsibilities and how and when Junior receives the cash is completely up to the terms laid out in the trust documents. Mommy and Daddy can pretty much make whatever terms they want, set almost any condition or limitation. For example, "Junior is to receive $50,000 a year, every year, until there is no more money left in the trust." Or, "Junior is to receive all of the money in the trust in one lump sum upon his 21st birthday."
There could be considerations for paying for Junior's college, paying for Junior's first house, paying for Junior's living expenses until he turns 18... the terms of the trust could be anything. And as the trustee, Auntie Ann is supposed to manage the money and disburse the money according to the terms of the trust documents. That's her job as trustee.
The whole point of giving legal title to the money to Auntie Ann is to prevent a scenario where Junior says, "I want to buy all of the tickets to DisneyLand!" Unless the trust documents state that the money can go towards something stupid like that, Auntie Ann must rightfully say, "stfu."
One more example. My buddy's mom has some fucked up issues involving addiction. My buddy and his sister both agree that if one of them were to die before mom, someone would have to take care of mom. Well, they both have life insurance policies that are designed to fund a trust that basically says whichever of the two of them survives the other, that person will receive the life insurance proceeds as trustee in trust for the benefit of mom (because mom can't be trusted to reasonably use the money for her own long term well-being).
...
So to conclude, the rights to property are broken down into legal title and equitable title. A trust is created when the owner of property gives away that property to two people: the trustee obtains legal title, and the beneficiary obtains equitable title. The trustee's job is to manage the property for the benefit of the beneficiary. The exact terms of how the trustee is supposed to do their job and how much benefit the beneficiary receives is almost entirely dependent on the terms of the trust instrument or trust document. You can pretty much set up the terms to be whatever you want.
In a nutshell, the division of property to two entities, the trustee and the beneficiary, is the definition of a trust.
FYI, if you have an institution in your town that's called "[whatever] Bank & Trust", they are a bank that also functions as a trustee. You can engage them as a professional trustee. That way, you don't have to worry about whether Auntie Ann is trustworthy and responsible enough to manage the trust; that bank is letting you know that they offer trustee services, and you can designate them as a trustee for the trust. The bank will charge a fee and deduct that fee from the trust assets in exchange for managing those assets (often, the fee will be a percentage of the total assets being managed).
This is the foundation of what a trust is. Next, I'll talk about what trusts are generally used for, and I'll later describe what they will likely fail to accomplish.
Edit: See my comment, below, for the links to Part 2 and Part 3 already posted.
futureismine888 7y ago
This is awesome, could the TRP moderators host an in depth information series featuring topics around law, business and maybe even entrepeneurship? This would perhaps be a monthly thing featuring an expert on the topic. I am sure some people would be happy to volunteer.
Something more technical and would be highly practical as well as applicable to people who want to better themselves.
ColdIceZero 7y ago
I'd be happy to teach more about law and entrepreneurship, and I'd be happy to verify my credentials with the mods.
BS in Accounting, MBA, JD with emphasis in Business and Entrepreneurial Law, and an LLM in Tax. I have 7 professional licenses, including my law license, insurance producer licenses, and mortgage loan officer license (but that's now expired).
In addition to operating a law practice, I also consult with small businesses on marketing and financial matters. I'm also on the roster to teach marketing in the Fall at a major state university.
So yeah, I'm down to talk about participating in monthly discussions about business topics.
futureismine888 7y ago
What a legend, I have been a long time lurker so not sure about the semantics of getting the ball rolling. But I am sure someone else reading this would like to get the attention of a moderator??
[deleted] 7y ago
Appreciate you taking the time to lay all of this out!
Stythe 7y ago
This is a post I'm excited about. I can't wait to see the rest of them.
Proto_Sigma 7y ago
So, in my attempt to summarize.
Legal title- the right to manage a property/ asset and the responsibility for that asset.
Equitable title- the right to use/ benefit from a property/ asset
Trust: a situation in which the titles are split between two different people.
ColdIceZero 7y ago
In a nutshell, that's a decent summary. A trust consists of 3 P's: Property (the assets), People (Trustees + Beneficiaries), and Plan (which is laid out in the Trust Documents). If you're missing any one of these three things, it isn't a trust.
And to slightly increase the complexity of the definition, the titles don't always have to be separated to two different people; the titles just have to be separated to two separate legal entities. Specifically, there are some instances where you can contribute a piece of property to a trust, with yourself as trustee and with yourself as beneficiary. You are the same you, but legally you are also distinctly the trustee and also distinctly the beneficiary. My examples used the concept of giving property to different people because it's often difficult for nonlawyers (and honestly sometimes difficult for lawyers) to understand when one person is legally considered to be two different entities at the same time.
Swelfie 7y ago
I had documents drafted for my solo 401k. I am the Adminsistrator, Trustee, Custodian and Beneficiary. Quite a few hats, not to mention paperwork.
LosingMoneyAllDay 7y ago
Eagerly looking forward to Part 2 and 3.
softlikedrake 7y ago
This is the type of post the red pill needs.
DeadShot91 7y ago
But not the one it wants right now.
[deleted] 7y ago
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DeadShot91 7y ago
Lol, it's a reference to The Dark Knight bro.
UltraCarnivore 7y ago
From a Lawyer: solid post.
From a Teacher: excellent didactics.
justcallmetarzan 7y ago
I came here to say exactly the first point. I'm just relieved it's not more of the absolutely terribad and inaccurate "legal" posts seen here quite often.
mrbluesdude 7y ago
Great post, thanks for following through and writing this out for us. Much appreciated :)
SiulaGrande 7y ago
great post, cant wait for parts 2 3 and 4
ColdIceZero 7y ago
Part 2 - https://www.reddit.com/r/TheRedPill/comments/62i9n2/tax_lawyer_here_for_what_purposes_do_you_use_a/
Part 3 - https://www.reddit.com/r/TheRedPill/comments/62igi3/tax_lawyer_here_trusts_marriage_trusts_divorce/
SiulaGrande 7y ago
haha thanks, already read them yesterday when you posted them. waiting on part 4, thanks for the contributions
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Your_Coke_Dealer 7y ago
Solid post, and looking forward to the follow-up. Just clarifying, unnoticed that you said a trust divides rights to assets between two parties, but you once specified "other" parties, and other times did not. Could I make myself a beneficiary and another person the trustee, for example?
John_McFly 7y ago
The trustee is not usually the beneficiary for the financial planning scenarios the OP is describing where the purpose of the trust (and the trustee's duty) is to protect the beneficiary's future interests from their own stupidity/issues/age.
In other scenarios, they may be, such as for firearms ownership trusts where the trust is more a legal vehicle to own the weapon (usually for multiple people to have access to what would otherwise be restricted to a single individual) and everyone involved wants to use it.
abdada 7y ago
Your estate planner can help you decide on a trustee. It also depends what kind of trust you set up for what assets, which OP will cover later.
Some trusts can be complicated and others simple. Some trusts can be attacked in court if you retain any control of the direction of the asset. My homes are owned by trusts but different ones as they're in different jurisdictions and the legality is slightly different. It's a very complex process and you definitely should hire a lawyer or an estate planner with a lawyer in-house.
If you have no net worth or negative net worth, it's not worth it. But hiring a lawyer now means you can plan your future better.
I know a guy who was making $230k a year as an employee. He worked it out with his lawyer and employer to incorporate and contract out and while he was paid a little more he ended up having more flexibility plus the option to hire employees and deduct expenses better. It also allowed him to build a better future to reduce liability, but he also lost some control of some assets.
vox_veritas 7y ago
Divorce attorney here. Thank Christ someone else corroborated what I tell people. When you try to be cute and clever like this, all it does is piss off the judge, especially when it results in a discovery dispute.
Good post all around.
twomeows 7y ago
I Work in banking and I'm shocked at what people think they can get away with through LLCs and trusts. so much garbage information out there
SeedGoose 7y ago
I'm a property law fanatic (not US law) and I must say that this is an excellent write-up. I know little about trusts and the like, but as lawyers we tend to use our own jargon combined with complex sentence structures when writing articles. This post is clear and explains the legal framework in a simple way ,which everyone is able to understand.
Looking forward to the follow-up!
redpillbanana 7y ago
Thanks for taking the time to do this.
One of the differences between the wealthy and the commoner is that the wealthy grow up around people who use these tools on a regular basis.
When I first entered the working world, I worked for a company that was in the process of going public. Much information came out about who owned what percentage of the company shares and one thing I noticed is that many of the executives held part or all of their shares in trusts. This is what first opened my eyes to trusts and their uses.
wutangzus2002 7y ago
What is the advantage of a trust holding on to their share? I'm guessing tax purposes but maybe I'm not seeing it?
redpillbanana 7y ago
Part 2 of the series will have your answer.
valjean913 7y ago
As the sole owner of an S Corp who's thinking of getting divorced I'm very interested to read where this series goes.
Thanks OP.
afkb39sdfb 7y ago
My understanding is since you are presently married your wife also owns part of your business and you cannot put it in a trust so she cannot get access to it upon divorce. If it was in a trust before you got married different story.
valjean913 7y ago
Yes & No. My wife doesn't own any of the business, but it is a marital asset that can be divided in divorce. Now, more likely I'd keep the company stock & she'd keep something else, but just in case a court ever split the stock and gave her 1/2 the shares my dad owns 20 shares as well. So I could never lose operational control of the business, and we have a long-standing buy-sell agreement that would trigger a requirement on her to sell the shares if she got them.
So, could she cash out the value of her 1/2 of the marital asset, yes. Could she gain physical control over the ownership of the company? No, not very likely.
MuhRedPillAccount 7y ago
Not a lawyer, but I believe that this largely depends on whether or not the business was started while he was married and with common vs. separate funds. This may be different in community property states, which mine is not, but if you owned a business prior to getting married in my state she would (probably) not have a right to half of your shares, although she would have a right to come after your income as per usual, which is likely being paid to you from profits.
max_peenor 7y ago
Well, if your primary goal is to keep her from raiding the wealth and you aren't too concerned about your own liquidity, you can structure it so that she has the same rights to the trust as you, but severely limit what those rights are. This is what I did with a large chunk of my money. There is also a cash out option which any party can elect, but it is a small fraction of the overall holdings. Right now, only she and I are parties, but as any heir reaches 18, they join.
So, if my blushing bride wants to dump me for Chad and go raise cows on a 1000 acre ranch in Oregon, she totally has the right to do that. However, she won't be cruising the Mediterranean with new dick on my hard earned cash.
afkb39sdfb 7y ago
There is always the option of what a guy did in Colorado. Cashed out 500k in investments, bought physical gold, and "threw it in a dumpster." Guy got away with it too. Wherever he stashed it he likely is being monitored and is going to have to wait awhile before he can cash it in.
http://nypost.com/2013/10/29/man-throws-gold-in-dumpster-so-his-ex-wife-couldnt-have-it/
max_peenor 7y ago
What a lot of women don't realize until it is too late is that some men will indeed burn down the world in vengeance.
[deleted] 7y ago
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valjean913 7y ago
Great point and I've actually looked into buying physical gold.
Here's the catch. If you're going to have your company buy it then you're buying an investment. So you have to be very careful not to deduct that as an expense from the company, and (presumably if you're law abiding) maintain the purchase records so you can later pay capital gains on the higher amount you sell the gold for in the future. If you're a 1 person company, or small operation where you're all 4 officers and do your own books... could you get away with buying a gold coin a month and listing it as a business expense? Possibly.... if you get audited for those years though no doubt you'll be repaying whatever lower tax bill you received from that expense plus whatever other penalties... so seems risky.
Option B with a lot less to keep track of is take the money as a paycheck, then buy the gold and stick it in a safety deposit box somewhere. (earmuffs for a moment OP)... Lie on your domestic relations affidavit and don't report it... Look like you have minimal savings to be split and hope the divorce court doesn't go far enough back into your checking statement to find the gold purchases.
Swelfie 7y ago
Or an asset search pulls up the fact that you own a safe deposit box. If I were to attempt to hide assets from a court proceeding, which of course I never would, I don't think I'd want them hidden somewhere someone might look with my name on them.
[deleted] 7y ago
I didnt have quite that situation but had a similar problem (I'm in Australia). Mother dies with mortgage on house. Estate is to be split between my self and sister. We wanted to keep the house. We had to refinance the house, bank forced us to remodel the house (it was old), bank started foreclosure (went to the Supreme Court here), but we finally were approved for a mortgage and had to reverse the foreclosure. Cost us $12K in legal fees but we finally remortgaged and kept the house.
The bottom line is marriages and deaths have unforseen consequences. Never in my wildest dreams could I predict sequence of events we went through. In our situation a trust was probably the right solution.
tldr: Do proper estate planning with a good lawyer.
comp21 7y ago
I'm not sure why but I don't see the comment anywhere in here with links to post 2 & 3... Would really like to read them.
Imarobot2 7y ago
Good post man. Trusts are a useful tool in the kit.
[deleted] 7y ago
Cant believe nobody mentioned bitcoin as a way to hide assets. Learn to bitcoin properly and there will be no way to reveal those funds. Fwiw i dont have to do thos because im never getting married just trying to help
basebool 7y ago
Yes but that runs the risk of the fluctuation in the currency.
Swelfie 7y ago
unless it never comes back. In theory you can tumble it (or use a darker coin like Monero) and sell to private buyers outside of large exchanges (like coinbase) that may report your information for cash. Now you have the mattress full of cash problem, but at least it's anonymous. Keep an encrypted record of what you do however, because if a lot of money just shows up in the future, the IRS may be more likely to notice than your ex and also has a much bigger stick with which to beat you with, so you want to retain the ability to prove that this was post tax funds and there was no tax evasion going on.
Now the problem of how to store physically comes into play which you don't have if just stored as crypto, but you only lose to inflation now not to a collapsing coin market.
[deleted] 7y ago
Yes it does but id rather lose it to the market than lose it to her. Also it may go up and has been trending up for 2 and a half yrs now
basebool 7y ago
I agree its a better trade off just worth noting it has risks as well.
RedPope 7y ago
If you are a divorced dad with minor children, set up a living trust immediately. It guarantees that your money goes to your kids and not your ex-wife.
Make the trust the beneficiary for your retirement and investment accounts, as well as your life insurance. Pay for their college, not her Lexus.
JP116 7y ago
In many states, by law, a former spouse cannot inherit assets upon the death of the other former spouse regardless of the terms of any will. So, this may not be necessary. Check with a divorce or estate lawyer in your jurisdiction.
jupc 7y ago
Sometimes divorce cases taken years, and a spouse dies during a marital dissolution proceeding. In California, this can mean the divorcing spouse takes the other's community property share or life insurance proceeds.
(Another reason not to draw out a divorce case).
Hillarysdilddo_2016 7y ago
This is an excellent series. Thank you for your contribution.
prodigy2throw 7y ago
Serious question. What if I put all my assets in my mothers name (say for example, I own a small business). Would that then protect my business from being fucked in the event of a divorce?
analyticaltoafault 7y ago
You are the fucking man for following through on your previous comment and making this topic!
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Xavhorn 7y ago
I've said it before and I'll say it again. Bitcoin is the only currency in the world that cannot be seized by any government, unlike fiat and silver/gold.
I know the biggest gripe people have with bitcoin is the price fluctuation, but let me ask you this: Would you rather lose 50% of your shit in a divorce or would you rather convert all your money to bitcoin and lose probably 10-15% in value?
And who knows, the price of bitcoin may even go up so you might actually have one of those rare cases where the man gets the divorced and leaves better off than when he came in.
I recommend any TRPer serious about his finances to educate themselves about bitcoin ASAP. Here are some videos to get started.
max_peenor 7y ago
O,RLY?
http://www.coindesk.com/us-government-to-sell-44000-btc-in-final-silk-road-auction/
Xavhorn 7y ago
I don't think seize was the right word I was looking for. Let me rephrase that, bitcoin is the only currency in the world that the government cannot EASILY take from you.
Fiat and silver/gold are physical currencies that can be taken away from you upon your death. Bitcoin is the only currency that cannot be taken from you in death.
Take these two scenarios for example:
Let's say you're a badass who's resisting a rubber hose beatdown from some alphabet agency types. They're trying to find out where you have a billion dollars in cash hidden. You never say a word and they kill you. If you buried the money somewhere, then you most likely took that money to the grave and noone will ever find it. But the possibility exists, that someone might stumble upon the same plot of land and dig it up one day.
There are rumors that the USG only seized a FRACTION of Ross Ulbricht's bitcoin stash, so he might have a nice pay day when he gets out of prison.
TLDR: You can kill someone and take their fiat, even if they keep their mouth shut. You can kill someone and take their silver or gold, even if they keep their mouth shut. You can kill someone, but you cannot take their bitcoin, if they keep their mouth shut.
Swelfie 7y ago
Which is highly likely to end him straight back in prison. Ross is going to be watched like a hawk by the DEA, FBI and IRS. However he can probably bargain for lots of "favors" from people who may just discover keys to some missing coins, but I doubt he's going to be able to get his hands on anything we would traditionally call wealth.