Conveying Assets Into the Masters Trust


So you got your Trust Terms & Conditions, or at least your initial documents, and have had your first meeting with your Settlor.  If not, read the article about the first meeting then come back.   What now?  First, you’ll take a deep breath, get your Letter Of Transfer and Conveyance Of Property form out… but wait!  There are things that you have to understand.  Please don’t just jump in with both feet, and regret what you did!

Let’s go through some of the intricacies of the who, what, when, where, how, and why first!

Who Can Convey Assets Into Your Trust?

After the Settlor has conveyed initial assets into the Trust, your Trust is ready for you as Trustee to have “others” convey assets into the Trust.  When I use the term “others” it means anyone other than the Settlor, or the Settlor if he, or she wants to convey MORE assets into your Trust.  It’s all the same to you as Trustee!

Then comes the next question… can you as Trustee convey assets into the Trust?  The answer is a resounding YES!  Anyone who is so inclined may convey assets into your Trust for any reason, and at any time.  Again, you as Trustee may convey assets into the Trust at any time.

What Can Be Conveyed Into Your Trust?

Assets!  Any assets including physical items like the coin collections, stamp collections, Jewelry, Triumph TR3, cash, stocks, bonds, oil and mineral rights, or whatever you choose, as mentioned in the Settlor Meeting Article.  First though, let’s talk about some implications of taking on the assets.  Food for thought – if your Beneficiaries don’t need four houses, 12 cars – (yes, some of us have big families!), a helicopter and a go-fast boat, don’t get them!

When purchasing a Trust, some people initially want to shield assets from the tax man… that’s one reason to buy a Trust. Others, like OJ Simpson bought a Trust to keep assets from being lost in a lawsuit.  Yet others buy a Trust for posterity – to build generational wealth.  The reasons for purchasing a Trust are many, and all of these reasons are good.  The questions I ask here and now, is OK, which of these assets are you willing to manage yourself as Trustee?  Which assets conveyed into your Trust must be managed by someone else like a real estate management company, a financial advisor, etc.  In other words, who is going to babysit your toys?  Whom do you as Trustee believe will do your asset justice and what condition will they be in when you return from a 3 or 6 month trip around the world?  Again, I ask, what can be conveyed into your Trust?  Anything that you as Trustee are willing to have in the Trust, understanding that it will take your time, and Trust resources to maintain for the benefit of the Beneficiaries.

What are the Tax Consequences of Conveying Assets Into The Trust?

Is this a trick question?  Well maybe!  We could probably have a Trust Tax Auditor talk for four hours on the tax consequences of conveying assets into a Trust.  Well I’m not an attorney, not a CPA, and not an IRS Trust auditor, so I’ll try to keep it simple.

First thing you want to find out is if there are any liens on the asset.  Is there a tax lien?  Is the asset otherwise encumbered with debt?

Now for the big question: will you have to pay taxes if you use the asset to create a return.  The simple answer, no! In order for the income to be Section 643 compliant, the Trustee must take the income and make it part of the original corpus of the Trust.  Here’s an example.  You take $1 million  and put it into IBM stock.  14 months later that same investment sells for $1.2 million.  The $1 million goes back in with the rest of the corpus where it came from.  The $200k profit however also must go back into the corpus in order to become Section 643 compliant.  In other words, if the Trust had $100 million before the IBM investment, after the IBM investment came back, the corpus would now be $100.2 million.  The Trust does NOT pay taxes on the income from the investment.

When Can Assets Be Conveyed Into Your Trust?

Assets can be conveyed into the Trust at any time for any reason.  You may be thinking should I put all of my assets into the Trust at once?  If so, no worries, no problem! Put your assets in when you like, where you like and how you like!  Even if your Settlor (mother-in-law) comes back two or three years later and wants to put something into the Trust for the benefit of the beneficiaries, she can.  No problem.

Where Can Assets Be Conveyed Into Your Trust?

Wherever you like!  Some people feel that it’s better to have a meeting with the donor on the beach in Hawaii.  Some like it cold, some like it hot!  If you like, your Trust can also own foreign assets, foreign real estate, etc.  You can also hold assets offshore.  No problem.

Why Convey Assets Into Your Trust?

The simple answer is for the benefit of your Beneficiaries, but you already knew that!  Essentially, my biggest reason for putting assets into a Trust is so that I can build value faster.  Let me explain: If I had to pay taxes on my income every quarter, then I’d lose close to half of my earnings with every transaction. Subsequently it would take much longer to start with $1,000 and make $1 million.  If I can defer taxes, it’s much easier to hole it in the Trust until the Beneficiaries need something.  Then, as Trustee I’ll make sure they have it!

Have questions?  Contact us here!