Put Not Your Trust In Money, But Your Money In Trust!

William Noll, Esq, Cpa

A trust is a legal arrangement or entity to hold, manage, control, privatize, protect or take care of property in certain special ways. Trusts are not publically created by a state corporate bureau, but by private written contracts between two parties – the grantor and the trustee, who create the contract for the benefit of a third party – the beneficiary. Typically the beneficiaries include the grantor, their spouse and heirs, such as children, grandchildren, etc..

There are many types of trusts, our focus here is an

Estate planning trust – such as a revocable living trust (RLT) which is an arrangement for the primary purpose of transferring your assets to your heirs upon your demise, without the cost and agony of probate. With an RLT you have superior family legacy planning because anything a will does, a properly structured RLT does and does so much better as follows:

(1) Identification & control of transfer of property to rightful heirs, with very little chance of being contested (A will can always be contested and often is).

(2) Avoid probate expenses, disputes and hassles by transferring legal title of property out of the grantor’s name into the trust. (A will does not do this).

(3) Give instructions for management of the trust assets during a period of grantor incapacity or being institution zed while the grantor is still living. (A will does not do this).

Without such a trust the following real world financial disasters continue to happen:

DISASTER 1: My cousin (Martin) happily married for many years with four great children. Unfortunately he and his wife got divorced. Subsequently he meets some “lush” (who can drink anyone under the table). They marry; a year later he suddenly and tragically dies. Guess who gets his entire estate? The lush! Guess who got NOTHING – his children!! It was not a huge estate, but $275,000 (including a house) is not chicken feed. Suppose you were the children – how would you feel? Obviously not very good. This sad family occurrence would not have happened with a properly structured trust.

DISASTER 2: Bob Bernstein had over a million dollars in assets including real estate. He is single with two teenage children – Bob, Jr. and Roberta. After receiving a flu shot Bob, Sr. became 90% paralyzed (incapacitated) for nine months. During this period his children – Bob Jr. and Roberta (who had access to dad’s funds) got swindled by a con artist with a Ponzi Scheme for $486,000. When Bob, Sr. recovered he realized to do two things 1. Avoid flu shots and 2. Use a trust. Number 1 would not have happen with probiotics and number 2 (our focus), this substantial loss would not have happened with a properly structured trust.

The personal assets that should be held by the trust are:

  • The ownership certificates (shares) of your LLC, corporation and other entities (Investment real estate is not placed in this trust but instead in a properly structured LLC with the shares of the LLC in the trust)
  • Your home, second home
  • Your vehicles – car, truck, RV, boat, plane
  • Bank accounts, brokerage accounts, securities, annuities, life insurance, etc.
  • Other personal valuables – Jewelry, antiques, precious metals, rare collections, etc.These assets have value and are therefore subject to attachment.While a properly structured revocable living trust (RLT) will protect the above assets from probate upon your demise, it does not give you asset protection and privacy. Let’s look at the next disaster that would not even be protected with an RLT. It came from one of my students – Thomas Vareya from New York..DISASTER 3: “About the real estate investor\landlord who was sued by the parents of their son a student who was a tenant of one of the investor’s properties. The student (tenant) locked himself out, scaled to the top of the house to get in, but fell and became permanently paralyzed. Then their lawyer realized the investor’s LLC’s certificates were considered personal property so the lawyer sued and won, wiping the investor completely.”  Bill Noll COMMENT: In another words instead of trying to collapse the LLC entity itself (LLC front door) – to attached personal assets; the lawyer went right through > the LLC back door attaching the investor’s totally exposed LLC membership certificates (shares) and then collapsed the LLC entity to attached personal assets. This is a form of “reverse veil piercing”, a dangerous and very effective weapon against unprotected assets.The opinions expressed are those of William Noll, CPA, and are not to be construed as legal or financial advice for your particular situation. Always consult the appropriate professional when needed. Meet Mr. Noll at the February 21, 2018 DREIA main meeting!