Monthly Archives: May 2015

The Concept of Trust

One of the biggest mistakes someone makes with regard to Trust is the very meaning itself. A Trust is not and never was a person; nor do the assets of a Trust have “a designated ownership” of anything – by anyone. The Trustee does not own the assets of a Trust nor do the Beneficiaries of that Trust. Therefore there is no equitable title to assets of a Trust.

If you can understand it, they are in a sort of “limbo” state held for the benefit of someone if the Trustee, at their absolute discretion chooses to distribute to a Beneficiary all or part of an asset. Otherwise they remain in Trust until such a time as the Trustee chooses to act.

Therefore an asset that is endowed or placed in Trust has no basis value when transferred to Trust. It is simply a “thing” without value no matter what the asset is. This is a hard concept for anyone to comprehend because people have always been taught to think about things in terms of value. Yet with value comes liability and liability sets value because of possible litigation. Since the Spendthrift Trust is beyond the power of any court or turn over order the liability is eliminated and therefore no value can be assessed to the assets held in the corpus of a Trust.

Take a Real Estate Property for example; the property is only property and has no value of basis when transferred to Trust. The property is titled to the Trust and since the property is in Trust and is held for the benefit of the Beneficiaries who do not have title to the property there is “no equitable title” therefore nothing can ever be attached or claimed in liability litigation.

Another example is some tangible asset. The asset is sold for cash by the Trust. Yet there is still no value because the Trust is not subject to capital gains and no value is attached to the asset exchange. One asset is simply exchanged in the form of a different asset and remains an asset of the Trust without value.

Once an asset is transferred to a Beneficiary the asset receives a value and the Beneficiary must then claim the income and pay taxes on that value. It is shown to the Beneficiary through a K-1 by the Trust. The K-1 reflects the actually cash value the Beneficiary has received, nothing more.

With regard to EIN numbers gained for the Trust. It is unnecessary to get an EIN number until a Trust is actually funded and a bank account is opened to do business.  Endowments may be received by the Trustee of the Trust but until the Trust is actually funded and starts to do business it is a useless action because 1041s must be filed each year and if no activity is in the Trust unnecessary expense is generated.

Endowments to the Trust of assets without the need for a bank account to activate the Trust doing business does not require an EIN.

This is general information only and does not imply tax advice or the advice of any CPA or Attorney or financial adviser. Opinions of professionals differ as to content and only licensed advisers may give advice. The above is general information from various different sources and should be taken as such. Advice of professionals should be obtained with regard to tax questions and legal matters. 

What is a Trust Estate?

The property or assets that are transferred to a trust becomes the trust corpus.  The Trustee of a trust is the only entity that can affect the transfer of assets, property or monies to a trust. A trust estate consists of all of the property (tangible or intangible), assets, cash, rights and obligations that are transferred to the trust.  The trust estate is managed in accordance with the terms and conditions of the documents creating the trust. Because the property is held in trust it is generally not subject to turnover

Trust Establishment

To establish a trust, consideration of some type is transferred from a Settlor to another person (known as the trustee) with the understanding that the recipient will hold the property and assets or use them in a way that is directed or established as laid out in the terms and conditions of the trust.  Anyone who benefits from the use of the property or assets is known as the beneficiary.

Have a question about Trust Establishment?  Ask our specialists in the comments below!

The Team

What is a Trust?

Trusts are legal entities that can be used to transfer and manage property or assets.  It is an ingenious entity empowering Trustees of the Trust to have and hold all control over that property or assets.  The terms and conditions of the Trust strictly define the form of the trust used and the needs of the people it is created to serve.

If you have any questions about what a Trust is and how it can help you manage your property or assets, use the comments section below to ask our Trust specialists.  If we don’t know the answer, we’ll get a paralegal involved to make sure that you get an answer!

The Team