SUCCEED ESTATE PLANNING AND TRUST

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What is the most secure financial Instrument on the Planet? 

 

That's right, the Trust is not only the most secure financial instrument on

the planet, but it is the oldest financial instrument on the planet.  The Trust

has 3 distinct advantages over all other financial entities.  

  

1. Asset Protection

2. Tax Benefits

3. Total Privacy

What is a Trust?

There are many kinds of Trust such as Revocable, Irrevocable, Living, Beneficial, Special Need, Family, Testamentary, Simple, Spendthrift, Dynasty, Complex, etc...  Trust can be simple, or they are complex by IRS standards.  Trust by definition are legal entities that can be used to transfer and manage property, investments, and assets.  The trust with a combination of these clauses presented in the right way can be very beneficial. 

Trust date all the way back to the laws of antiquity in the late 1500's.  This instrument was used worldwide to conduct business and trade assets.  Laws were written to accommodate the integrity of the trust by keeping it out of the reach of creditors and debtors.  

 

The 13 Unions that formed the United States of America Did Not claim to be One Nation but Claiming its Own Independents. Today we have State and Federal Law, the Federal Government recognize States as a Private Trust Entities that is under their own jurisdiction. 

The Constitution of the United States of America is a TRUST agreement among all States to protect its boundaries, it’s properties, and it’s assets for the benefit of it’s citizens under a Uniform or United State Code that all State could agree to follow in TRUST.

A trust fund is a fund comprised of a variety of assets intended to provide benefits to individuals or organization. A grantor establishes a trust fund to provide financial security to an individual, most often a child or grandchild, or organizations, such as a charity or other nonprofit organizations.

Once you place assets in the trust, they are no longer yours.  They are under the care of the trustee.  A trustee is a bank, attorney, or person or other entity set up for this purpose.  Since the assets are no longer yours, you don’t have to pay income tax on any money made from the assets.

Why Set Up A Trust?

The most important reason for setting up a trust is because it is the right financial vehicle to create generational wealth.  Other financial instruments are double taxed, leaving less income to build generational wealth.  

ASSET PROTECTION 

When it comes to asset protection, their is only one financial vehicle that can give you total asset protection.  If the trust is set up correctly, your assets become totally out limits to all creditors and debtors.  

PRIVACY 

The trust can be a private vehicle depending on how the trust is set up.  Most trust are set up as a public vehicle allowing creditors to see who manages and benefits from the trust.  

TAX BENEFIT

The trust is the only instrument on the planet that is not DOUBLE TAXED.  This allows the trust to create generational wealth by investing and acquiring assets.  

Trust Vs. Will

PRIVACY – VS – NO PRIVACY

NO PROBATE – VS – PROBATE

LAWSUIT PROOF – VS – NOT LAWSUIT PROOF

TAX BENEFITS – VS – NO TAX BENEFITS

NO ESTATE TAXES –VS – ESTATE TAXES

ASSET PROTECTION –VS- NO ASSET PROTECTION

WORKS WHILE YOU ARE ALIVE – VS – WORKS ON DEATH

MORE EXPENSIVE – VS – LESS EXPENSIVE

NO LAWYER AFTER SET UP – VS – NEED LAWYER AFTER SET UP

BUSINESS TRUST – VS – NO BUSINESS

EIN NUMBER – VS – NO EIN NUMBER

BUILD ASSETS  -VS – NOT ABLE TO BUILD ASSETS

Trust Vehicles

Business Trust   –  Claims NO ownership–  No Liability  - Tax Benefits depending on type of trust- Based on Trust Credit – Private Entity  depending on how it is Registered – City  Incorporation State, Federal – Common, Civil and Statutory Law based on Registration

 

 

Beneficial Trust – Claims NO ownership–  No Liability  - Taxable deferred depending on type of trust- Based on Trust Credit – Private Entity  depending on how it is Registered – City  Incorporation State, Federal – Common, Civil and Statutory Law based on Registration

 

Real Estate Trust  – Claims NO ownership–  No Liability  - Taxable deferred depending on type of trust- Based on Trust Credit – Private Entity  depending on how it is Registered – City  Incorporation State, Federal – Common, Civil and Statutory Law based on Registration

 

Charity Trust  – Claims NO ownership–  No Liability  - Taxable exempt depending on type of trust- Based on Trust Credit – Private Entity  depending on how it is Registered – City  Incorporation State, Federal – Common, Civil and Statutory Law based on Registration

Partnership Vehicles

Limited Partnership, LP, L.T.D   –  Claims 100% ownership –  Full Liability  - Taxable depending on income bracket- Based on  Personal Credit – Public Entity – Registered on City,  Incorporation on State, Registered in Federal –  Governed by Civil and Statutory Law

 

LLC , LLP, PLLC, PLLP – Claims 100% of ownership – Partial Liability - Taxable depending on income bracket – Based on Personal and Business Credit – Public Entity – Registered on City. Incorporated with State, Registered in Federal  - Governed by Civil and Statutory Law

 

C or S Corporation  – Claims 100% of ownership – Partial Liability - Taxable depending on income bracket – Based on Personal and Business Credit – Public Entity – Registered on City. Incorporated with State, Registered in Federal – Governed by  Civil and Statutory Law

 

Non-profit  – Claims no ownership – Partial Liability - Taxable depending on tax exempt status– Based on Personal and Business Credit – Public Entity – Registered on City. Incorporated with State, Registered Federal – Governed by Civil and Statutory Law

I.R.S TAX CODE 643

Distributable net income

For purposes of this part, the term “distributable net income” means, with respect to any taxable year, the taxable income of the estate or trust computed with the following modifications—

(1)Deduction for distributions

No deduction shall be taken under sections 651 and 661 (relating to additional deductions).

(2)Deduction for personal exemption

No deduction shall be taken under section 642(b) (relating to deduction for personal exemptions).

(3)Capital gains and losses

Gains from the sale or exchange of capital assets shall be excluded to the extent that such gains are allocated to corpus and are not (A) paid, credited, or required to be distributed to any beneficiary during the taxable year, or (B) paid, permanently set aside, or to be used for the purposes specified in section 642(c). Losses from the sale or exchange of capital assets shall be excluded, except to the extent such losses are taken into account in determining the amount of gains from the sale or exchange of capital assets which are paid, credited, or required to be distributed to any beneficiary during the taxable year. The exclusion under section 1202 shall not be taken into account.

(4)Extraordinary dividends and taxable stock dividends

For purposes only of subpart B (relating to trusts which distribute current income only), there shall be excluded those items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, does not pay or credit to any beneficiary by reason of his determination that such dividends are allocable to corpus under the terms of the governing instrument and applicable local law.

(5)Tax-exempt interest

There shall be included any tax-exempt interest to which section 103 applies, reduced by any amounts which would be deductible in respect of disbursements allocable to such interest but for the provisions of section 265 (relating to disallowance of certain deductions).

The Treasury Department and the IRS issued final regulations amending the definition of income under section 643 of the Internal Revenue Code.   These regulations also clarify the circumstances under which capital gains are included in the distributable net income (DNI) of an estate or trust.

 

“This new definition of income clarifies the application of federal tax law in light of recent state law changes,” stated Pam Olson, the Treasury’s Assistant Secretary for Tax Policy.   “The regulations are an example of the appropriate evolution of federal tax law to reflect and facilitate non-tax changes in the law that apply to taxpayers.”    

 

Section 643(b) of the Code defines income for purposes of numerous federal tax provisions, including determining qualification for the estate and gift tax marital deduction, and computing required distributions from pooled income funds and certain charitable remainder trusts.   With certain exceptions, this definition generally relies on the definition of trust accounting income under state law and the trust agreement or will.   Many states have now changed their definitions of income to permit trusts and estates to adopt a more profitable method of investing their funds, and to promote more equitable and impartial treatment of those with interests in the income or principal of those entities.

Trustee Knowledge

Being able to allocate money to either the income or principal sides of a trust is a key element in successful trust administration because the people who are entitled to receive income may not be the same people entitled to receive the principal when the trust terminates. One of your jobs as trustee is to make sure that you don’t favor the income interest over the principal interest, or vice versa.

Principal, sometimes referred to as the corpus or body, of the trust, is the property that the trust owns. Although trust principal starts with the assets that originally fund the trust, it may increase or decrease in many situations, including the following:

  • The sale of trust property creates capital gains or losses.

  • The grantor makes additional contributions to the trust.

  • The trust receives a settlement or judgment as a party in a lawsuit.

Trust Definitions

SPECIALIZED – This is trust is a specialized trust giving it the capabilities to convey, sale or partner with other entities for the interest of the beneficiaries

 

NON-GRANTOR – is a trust that is not taxed to the grantor (the person that creates and donates assets to the trust). Again, this is an income tax concept only — not a gift tax or estate tax concept. In this type of trust, the grantor is not treated as the owner of any portion of the trust.

 

GRANTOR – A grantor trust is a type of living trust, which means it takes effect during the lifetime of the individual who created it. According to the IRS, a grantor trust is one in which the grantor, i.e. the person establishing the trust, retains control over trust's income and assets.

 

REVOCABLE – is a trust whereby provisions can be altered or canceled dependent on the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries

 

IRREVOCABLE – is a type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor's named beneficiary or beneficiaries.

 

SIMPLE TRUST– A simple trust must distribute all its income currently. Generally, it cannot accumulate income, distribute out of corpus, or pay money for charitable purposes. If a trust distributes corpus during a year, as in the year it terminates, the trust becomes a complex trust for that year.

 

COMPLEX TRUST – A “Complex Trust” gives the Trustee discretion to either distribute the income or to hold the income within the trust. The word complex means that the trustee has more discretion, rather than the trust's terms are more complicated. A tax return for a Simple Trust will show that all income passed out to the beneficiary.

 

DISCETIONARY – A discretionary trust is a trust that has been set up for the benefit of one or more beneficiaries, but the trustee is given full discretion as to when and what funds are given to the beneficiaries.

 

SPENDTHRIFT – is a trust that is created for the benefit of a person (often unable to control his spending) that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary.

 

DYNASTY – A dynasty trust is a long-term trust created to pass wealth from generation to generation without incurring transfer taxes, such as the gift tax, estate tax, or generation-skipping transfer tax (GSTT), for as long as assets remain in the trust. The dynasty trust's defining characteristic is its duration.

 

SETTLOR – A settlor is an entity that establishes a trust and legally transfers control of an asset to a trustee, who manages it for one or more beneficiaries.

 

COMPLIANCE OFFICER – The compliance officer is responsible for review practices, conduct investigations, identify potential risks, maintain regulatory knowledge, review and update internal policies, prepare and file required documents, educate staff.

 

TRUSTEE – The trustee acts as the legal owner of trust assets, and is responsible for handling any of the assets held in trust, tax filings for the trust, and distributing the assets

 

BENEFICIARIES – A beneficiary of trust is the individual or group of individuals for whom a trust is created. The trust creator or grantor designates beneficiaries and a trustee, who has a fiduciary duty to manage trust assets in the best interests of beneficiaries as outlined in the trust agreement.

 

CORPUS – The corpus of a trust is the sum of money or property that is set aside to produce income for a named beneficiary. In the law of estates, the corpus of an estate is the amount of property left when an individual die. Corpus juris means a body of law or a body of the law.

 

DOUBLE TAXATION– The trust is a taxable entity. Beneficiaries usually have to pay tax on the income that they receive from the trust. Trusts are not subject to double taxation, so any taxable income distributed to the beneficiaries is deductible by the trust.

 

PRINCIPAL – The principal of an estate or trust is the amount originally received, plus capital gains and less debts, expenses, and capital losses. The principal is sometimes called the "corpus" (or body) of the estate or trust. The income is the interest, dividends, and other income earned by the principal.

 

 

INCOME – When taxed to the trust, the likely tax rate will be 20% plus the 3.8% tax on net investment income, or 23.8%, for a differential of between 5% and 23.8%. The highest tax rate for income to the trust is 37% as of 2020. 

 

CAPITAL GAINS – The maximum tax rate for long-term capital gains and qualified dividends is 20%. For tax year 2020, the 20% rate applies to amounts above $13,150. The 0% and 15% rates continue to apply to amounts below certain threshold amounts. ... The 15% rate applies to amounts between the two thresholds.

 

QUALIFIED DIVIDEND – The IRS does not tax a trust for dividends that it distributes to its beneficiaries, whether that dividend payout is required by the trust document or not. ... The payments to beneficiaries are reported by the trustee on Form K-1, copies of which must be sent to the beneficiary and attached by the trustee to Form 1041.

 

EXTROARDINARY DIVIDEND – are dividends that are derived from a life insurance policy, mutual fund, endowment, annuity.  These particular type of dividends are not taxable to the trust or its beneficiaries. 

 

STOCK DIVIDEND– are dividends that are derived from a stocks and bonds.  These particular type of dividends are not taxable to the trust or its beneficiaries. 

 

Make It Your Choice To Succeed

Russell R. Thompson, M.B.A

 

Representation

Succeed Consulting Firm is represented by Attorney Sonya Anderson of The Anderson Law Group in Houston, Texas.  Attorney Anderson handles all Trust documents and consultation for all Trust instruments for Succeed.