There are many benefits of a Spendthrift Trust, but three stand out. The first is the Protection of Assets which is like putting a lock box around your estate and holdings to protect them against judgments, levies, and lawsuits. In a litigious culture such as ours, each of us are only a heartbeat away from loss of our assets due to a lawsuit. Harsh judgments from car accidents, slip and fall accidents, injuries caused by animals, workplace accidents, frivolous lawsuits from sexual harassment to professional malpractice to wrongful death, are daily occurrences.
Business owners are especially at risk with a one in four probability of being sued. Those who have a business under a statutory LLC or Corporation have a false security because both can easily be pierced through a lawsuit with a good attorney. Should that happen, your personal and business assets of a lifetime are subject to court judgments and loss. However, assets placed in a Spendthrift Trust are protected from lawsuit since the Trust is not a statutory entity.
The second benefit is the Building of Generational Wealth by using a superb legal avenue that passes assets down from one generation to the next. You don’t have to look further than Jeff Bezos, Elon Musk, Bill Gates, Warren Buffett, Rupert Murdoch, Donald Trump, and many others, to see how wealth can trickle down and set up future generation for success. Assets that may be included in a Trust are bank accounts, precious metals, digital currency, real estate, stock market investments, life insurance, annuities, business assets, or anything else which has a monetary value. Beneficiaries who receive generational wealth start off with a substantial financial advantage over those who do not. This will help them avoid costly debt and instead begin on solid financial foundation.
The third benefit is the ability to Maximize Tax Deferment on passive income such as interest, dividends, capital gains, and royalty income, etc. Passive income that goes through a proper drafted Spendthrift Trust can be delayed, similar to what occurs in a 401K or an IRA! Taxes on passive income, such as Dividend Income and Capital Gains can be DEFERRED. This income will not be taxed until the funds are distributed to a Beneficiary. Like putting yeast in a bowl of dough, it will allow your assets to grow and grow like never before. There is a substantial benefit to deferring taxes, because this allows the entire principal and any accumulated earnings to compound tax deferred. The compounding effect is dramatic over an extended period of time and makes a big difference in the accumulation of a financial nest egg.
Assets may include bank accounts, precious metals, digital currency, real estate, stock market investments, life insurance, annuities (not IRA or Roth), a business asset, intellectual property, or anything else which has a monetary value.
All passive income such as such as dividends and capital gains. Active income must pass through and be taxed on the individual tax return.
Basically, what is known as the 3 F’s or “food, fun and fashion.” Items in these categories would be considered personal expenses and should not be paid for by the Trust.
We recommend that all Trust documents be executed in the presence of a notary.
The life is 21 years. It is renewed by the Trustee and may be renewed indefinitely.
A Demand Note is legal promissory note. Let us consider an example of how this might work. Let us say a seller wants to sell his property, house, household possessions, and two vehicles to the Trust with cost basis of one million dollars. The seller prepares a Bill of Sale, Warranty Deed, annotates data on a Purchase and Liability form. Those three documents along with a Demand Note that IFS will prepare serve as evidence of the sale and transfer of the assets and a loan to the Spendthrift Trust.
After signing and notarizing these documents, the Trust will own the assets and owe the seller one million dollars, which can be repaid with interest based on the terms of the Demand Note which becomes a legally binding loan document. Whenever the demand note holder needs funds for an expense that is not considered a legitimate Trust Expense, the holder can request a payment from the Trust. The payment will reduce the amount of the demand Note by the principal amount of the payment. Payment to the demand note holder may include a certain amount of interest. While the principal being withdrawn is not taxable to the demand note holder, the interest included in the payment must be reported on a K-1 and is taxable personal income.
The Trustee is not required to pay for the use of Trust assets while conducting Trust business. However, if the Trustee lives in a Trust-owned residence, he/she should pay a reasonable amount of rent. On the other hand, beneficiaries usually do not pay rent to the Trust.
Basically, anyone the Trustee authorizes.
