Confused on trusts

[MojoSizzle]

What is the name of your state (only U.S. law)? Tennessee

I am wanting to establish a trust but I am so confused as to what type of trust to use and how to go about it. I know at some point I will most likely need an attorney to take care of this issue, but I want to understand it first so that I know what I am getting into and can make sure the attorney does the right thing.

There is so much information on this forum and the internet in general that I am a bit overwhelmed, even as to where to start researching.

The following is the scenario and desire I have for the trust. Any guidance, help, or pointing in the right direction is greatly appreciated.


I, John Q. Smith, owner of a business in the state of Tennessee, would like all assets from said business put into a trust. Assets would be only cash at this point as the business owns no real property. I would like to appoint my wife, Jane Q. Smith, and a non-family member, Paul H. Doe, as both trustees and beneficiaries. I would like for Jane Q. Smith and Paul H. Doe to both be required to give signatures for any and all asset allocation and to each be entitled to 50% of the assets. My idea being that they are each entitled to half of the assets, but can only gain access to assets with approval of the other. That way I am assured neither of them can take more than their fair share from the trust assets and that assets will not be allocated except in ways that both see Jane and Paul see fit. I would also like the ability for the trustees to purchase real property in the future with cash assets from the trust. I would also like for Jane and Paul to have assurance that I will never dissolve this trust, or change the trustees/beneficiaries.

My questions are:
-Which type of trust(s) fits this scenario best?
-Am I obligated to use an established trust type, or can I create my own terms for the trust?
-After I establish the trust, what responsibilities and duties would I have?
-What happens to the trust upon my death?
-Could the real property purchased by the trustees with cash assets from the trust be titled in the name of the trust? Thus transferring cash assets held by the trust into real property assets held by the trust.
-Upon my death, what happens to the trust?

Thank you to all that will help me with this issue.What is the name of your state (only U.S. law)?

 

[tranquility]

I would also like for Jane and Paul to have assurance that I will never dissolve this trust, or change the trustees/beneficiaries.

That would be an irrevocable trust.

Do you want to do that?

Don't you want the benefit of some of the money yourself?

How is the business organized?

What is your goal from putting the "assets" of the business in a trust?

What is your goal here? Not how you want to do it, what is your goal?

 

[MojoSizzle]

That would be an irrevocable trust.

Do you want to do that?

Don't you want the benefit of some of the money yourself?

How is the business organized?

What is your goal from putting the "assets" of the business in a trust?

What is your goal here? Not how you want to do it, what is your goal?

Yes, that is what I want. I know that irrevocability will be a clause to it, but as far as other aspects of the trust I'm lost. Up until this point, I saw trusts only as a way for elderly well off folks to set aside assets for others to reduce taxes upon death, but I am of younger age and death of old age is not a concern to me at this point in life. No I do not the money for myself. I have other assets/income to live with. My wife will be one of the trustees so it's not as if I can't benefit from the trust in some indirect way if need be, e.g. unforeseen catastrophic circumstance. The goal of the trust is a gift of assets from me to the trustees/beneficiaries, with limited or no liability on their part if say, for instance, the business were to be brought into litigation. I want some protection against liability of the business for them(the trustees/beneficiaries).

 

[tranquility]

Why not just create an LLC and gift it to them both?

 

[MojoSizzle]

Why not just create an LLC and gift it to them both?

I am under the impression, from research I have done, that an LLC would not provide the same type asset protection for Jane and Paul.

For instance; if Paul were to be stupid, drive drunk and injure someone, he could and most likely would be sued for everything he owns. If the assets were in a LLC, wouldn't the person suing Paul have right to claim against the assets? Whereas if the assets are in a trust, wouldn't they have no claim to those assets because they would still be "owned" so to speak by the trust entity?

I want to do what is best for providing protection for these assets so they are not squandered to possible future lawsuits, whether frivolous or non-frivolous.

 

[curb1]

I don't think you need a trust.

Your easiest solution would be to buy a $1,000,000 term life insurance policy for each person.

There are many questions that you are leaving unanswered. Will this business function without you? Does your wife and "Paul" want the business after you die?

You said, "I, John Q. Smith, owner of a business in the state of Tennessee, would like all assets from said business put into a trust. Assets would be only cash....". Why not put all of the cash assets into an account with a TOD (Transfer on Death) designation? The business could use the cash as you see fit until you die.

 

[MojoSizzle]

I don't think you need a trust.

Your easiest solution would be to buy a $1,000,000 term life insurance policy for each person.

There are many questions that you are leaving unanswered. Will this business function without you? Does your wife and "Paul" want the business after you die?

You said, "I, John Q. Smith, owner of a business in the state of Tennessee, would like all assets from said business put into a trust. Assets would be only cash....". Why not put all of the cash assets into an account with a TOD (Transfer on Death) designation? The business could use the cash as you see fit until you die.

Thank you for your response and questions as to my intent. I tried to express my intent initially, but have left some things out. I hope to clarify my intent so that I can learn what would be the best thing to do.

I see that it's the general opinion here that a trust is not needed for this, but I will continue to express my wishes in terms of the assets going into a trust, as I have done much thinking on this and it's how I have things worked out in my head at this time, therefore clarifying/amending my original post.

Please do not take my answers as ignoring others opinions/suggestions.


What would be accomplished with the insurance policies? Would they insure incidents such as the hypothetical drunk driving incident i posted above or something else? Please keep in mind that I am not looking for the easy way, I am looking for the best way.

The business could function with me or without me(with oversight by the trustees). It is an internet based service business and requires very little actual work to be done as it is already well established. The only work to be done is occasional upkeep of webhosting and such(20 hours at most per year). My wife and Paul would want the business after I die.

I do not want to retain the cash assets for use as I see fit until my death. My intention is to pass these assets to my wife and Paul, as a cordial gift to them. After all, it is my wife and the closest friend I have ever had. I never would have made it as far in life as I have without them.

 

[curb1]

You said, "I do not want to retain the cash assets for use as I see fit until my death. My intention is to pass these assets to my wife and Paul, as a cordial gift to them. After all, it is my wife and the closest friend I have ever had. I never would have made it as far in life as I have without them."

The simplest and best way to handle this is to have the cash assets in an account with Charles Schwab (or similar) with a Transfer on death account to wife 50% and Paul 50%. The assets are passed outside of probate at the time of your death. Until you die, you, wife, Paul and business would have total flexibility to use the assets as you please. All of this would be at no cost to you to set up and would take less than an hour of your time.

 

[MojoSizzle]

You said, "I do not want to retain the cash assets for use as I see fit until my death. My intention is to pass these assets to my wife and Paul, as a cordial gift to them. After all, it is my wife and the closest friend I have ever had. I never would have made it as far in life as I have without them."

The simplest and best way to handle this is to have the cash assets in an account with Charles Schwab (or similar) with a Transfer on death account to wife 50% and Paul 50%. The assets are passed outside of probate at the time of your death. Until you die, you, wife, Paul and business would have total flexibility to use the assets as you please. All of this would be at no cost to you to set up and would take less than an hour of your time.

Transfer on death account just doesn't have the same ring to it as gifting them the assets. I want them to have the assets now, while I am alive, to do with as they please for enjoyment or investing or whatever their hearts desire. Seeing them using the assets would bring me great joy.

With a TOD account, I will still have access to the assets. I do not want any control of the assets. I want the two of them to use these assets as they and only they see fit, without my oversight. I should have added before, that in addition to very little man hours for upkeep, the business requires almost no funds to run it($2500 a year at most).

 

[curb1]

You are making this entirely too difficult (to the point of not making sense). Just give them the money. What are you waiting for? Your wife can spend as much as she wants now without going through the process of gifting. How much are you talking about, $1 million, $5 million, or what?

 

[tranquility]

Get thee to a professional. Maybe two or three or more. The issue would be is if the two signature requirement is enough to take it out of being within the beneficiaries' control. There are spendthrift trusts to protect assets of an INDIVIDUAL, but part of the elements of those contain true limitations on the protected beneficiaries ability to use the assets. (A subset of special needs trusts.) I've never heard of such protection offered when the beneficiary is one of the trustees.

Also, there is the business/personal issue. With two signatures REQUIRED and 50/50 ownership, I see many problems. Remember, no matter how much their thoughts align now, goals change. A little builds and all this gift given could be a curse where neither ends up with anything because of a lack of agreement of a direction. Two bosses is a bad idea.

Since my other questions weren't answered, I won't even start to get into the third issue, what is your theory of the tax ramifications? What kind of numbers are we talking about here?

 

[curb1]

Mojosizzle is talking in circles. I don't think he is serious.

He said, "I want them to have the assets now, while I am alive, to do with as they please for enjoyment or investing or whatever their hearts desire. Seeing them using the assets would bring me great joy."

Just give "Paul" the money 50% and your wife 50% and be done with it. What is all this "beneficiary" talk about?

I'm starting to think that your wife and "Paul" have a thing going and you just want to stand back and watch.

 

[MojoSizzle]

Get thee to a professional. Maybe two or three or more. The issue would be is if the two signature requirement is enough to take it out of being within the beneficiaries' control. There are spendthrift trusts to protect assets of an INDIVIDUAL, but part of the elements of those contain true limitations on the protected beneficiaries ability to use the assets. (A subset of special needs trusts.) I've never heard of such protection offered when the beneficiary is one of the trustees.

Also, there is the business/personal issue. With two signatures REQUIRED and 50/50 ownership, I see many problems. Remember, no matter how much their thoughts align now, goals change. A little builds and all this gift given could be a curse where neither ends up with anything because of a lack of agreement of a direction. Two bosses is a bad idea.

Since my other questions weren't answered, I won't even start to get into the third issue, what is your theory of the tax ramifications? What kind of numbers are we talking about here?

I will take your advice and seek counsel, I simply would like to understand what I am getting into first. I understand I am more than likely overcomplicating this, but aren't trust entities complicated in nature? And is this not a forum for discussion of these complicated legal issues?

Thank you for your insight. Thoughts like that are very helpful to me. I don't want to go speak with attorneys and be ignorant as to what will be discussed or not know what questions to ask.

I only trust 3 people in this world, and one of them is me.
My idea of both wife/Paul being 50/50 trustee and beneficiary is simply me trying to express that I'm looking for a way that no more than half the assets are used by either party, thus ensuring a square deal. I think verbiage could be put in the trust stating such, but then the trustees(wife/Paul) are the ones overseeing that the trust is honored. So I'm right back where I started. I understand what you are pointing out about two bosses being a bad idea. But who else am I to trust will honor my wishes? In my mind, wife's signature would only be required to make sure Paul was withdrawing no more than his half, and vice versa. I would much rather entrust the two of them to work together instead of trust someone I do not know to handle the role of trustee.

I thought I had addressed all your questions. Did I miss something?

As far as numbers go, initially, more than $10M. And each year, at least for the foreseeable future, more than $1M in additional assets. Is there any way to shelter that level of assets from ridiculous tax rates? I'm under the impression that there is not.

If I am to take curb1's suggestion and just write them each a check, thats 35% of my gift gone. Mind you that the cash assets in the business now are what are left over after I've paid income taxes. So to me it's like the government is double dipping. They got 35% for me earning the money, and now they want 35% more to transfer ownership.

Is there laws governing what elements can be put in a trust? Is it an open thing or are there only set parameters that can be used?

 

[MojoSizzle]

Mojosizzle is talking in circles. I don't think he is serious.

He said, "I want them to have the assets now, while I am alive, to do with as they please for enjoyment or investing or whatever their hearts desire. Seeing them using the assets would bring me great joy."

Just give "Paul" the money 50% and your wife 50% and be done with it. What is all this "beneficiary" talk about?

I'm starting to think that your wife and "Paul" have a thing going and you just want to stand back and watch.

I don't appreciate what you are inferring. If you cannot be polite please do not comment.

If I have spoken in circles it is only due to the amount of confusion involving trust entities.

I can't just write them each a check and be done with it. More money is added every day. I don't want to be bothered with overseeing the gift, however easy it may seem to you. It is neither my intention nor desire to be in control of assets.

 

[curb1]

No, you want the two of them to have all of the money now ("I want them to have the assets now, while I am alive, to do with as they please for enjoyment").

Just give them the money. Give them half ownership in the business to split the income as it accrues. That is what you said you want. Why is this complicated? Of course there will be taxes, what's new?

1) "I do not want to retain the cash assets for use as I see fit until my death."

2) "I want them to have the assets now, while I am alive, to do with as they please for enjoyment or investing or whatever their hearts desire."

3) "I do not want to retain the cash assets for use as I see fit until my death."

4) "My intention is to pass these assets to my wife and Paul, as a cordial gift to them. After all, it is my wife and the closest friend."

5) " It is neither my intention nor desire to be in control of assets."

Then you said, "I don't want to be bothered with overseeing the gift". How hard is that? It is considerably easier than "overseeing" a trust. You are not making sense.

Just give them the business and the business assets. That is what you have been saying this whole time.