Tuesday, April 29, 2014

Frequently Asked Questions

1. Why should I have a SPAT or SPA Trust?

First let me explain that there is no difference between a SPAT and SPA Trust, both are irrevocable. The best kept secret to the reason for a trust is asset protection. As long as there are no fraudulent conveyances you will have complete protection from creditors.

2. What is fraudulent conveyance?

Fraudulent conveyance occurs when you have or know of pending creditor claims or law suits against you and you move assets from your own name to any other name or entity.

3. What is the difference between a revocable and irrevocable Trust?

The revocable trust, such as a living trust has no asset protection, in other words creditors can reach your assets in this type of trust. An irrevocable trust is opposite of a revocable trust and has asset protection if properly written and done under the jurisdiction of the right state, such as Nevada. Some states trust law affords little protection and if you have language in the trust that allows a settlor to change the trust the trust become revocable and asset can be reached by creditors, such as Missouri.

4. Does federal law protect SPAT or SPA irrevocable Trust?

Yes. 11 USC sec. 541(b)(1) protects trusts that are other than the debtor and there was no foreseeable problems before the trust was set up, such as fraudulent conveyance. Trust law is really controlled by the governing state law named within the trust, such as Nevada chapter 163.

5. How does an irrevocable Trust protect assets?

When assets are placed or purchased by the trust the title to that asset is split with legal title being held by the trustees and equitable title being held by the beneficiaries. The definition of a trust is simple, assets held by trustees for the future benefit of the beneficiaries.

6. Can a trust create another trust?

Yes. In Nevada under chapter 163 a trust can create and fund another trust as long as the beneficiaries remain the same or the beneficiaries agree that the beneficiary can change.

7. Can an irrevocable Trust own a corporation or LLC?

Yes, but I do not advise it. What I do advise is that the trust be a stockholder or general partner of an LLC. This gives greater protection to the trust and possibly better tax advantages depending upon the type of corporation or LLC election, such as an S corp.

8. Is Wyoming a good jurisdiction to set up an LLC?

Yes, but it has its limitations, such as, you must have an officer within Wyoming and it has pierced the corporate veil more ways than Nevada in its case law.

9. If I need an LLC, would it be best to set one up in Nevada?

Yes. Nevada has the best all-around case law for the protection of LLCs.

10. I was trying to understand from something I read, it seems like the Wyoming and Nevada Corps and LLCs were similar, is this correct?

Yes. Corps and LLCs are similar in most states. The Wyoming Corp. is good in the sense that Wyoming has no income and capital gains taxes, but does it have corporate taxes every year? This I am not sure of without further research. I know that Nevada does not have income, cap gains or corporate taxes.

In Nevada, piercing the corporate vial is impossible and allows protections for single officer and board member and one can be the same with the same protections.

11. I keep reading about the Business Trust, is this different than the Revocable Trust that I was thinking about obtaining? I wanted to put house, car etc. in the Revocable Trust so my daughter/son will have full access.

Revocable Trusts and Irrevocable Business Trusts are two different animals under the law, either one can be used for the purposes you ask in your question. I prefer SPAT irrevocable trusts, because the business trust is one of the most picked on by the IRS and considered abusive.

12. Can a trust be put in the name of my Corporation?

I would never put any trust or corporation in the name of the other or have one being the owner of the other and vise a versa. The reason is, if the corp. veil is ever pierced then they have long arm reach into the other ownerships of that trust, business or corporation.

13. In speaking with a wealth manager friend here in NY State, he mentioned that an "irrevocable trust" is just that - i.e., it cannot be changed, and if it is, it is invalidated. Also, here is a definition I found that seems to confirm this:

"Irrevocable trust. In contrast to a revocable trust, an irrevocable trust is one in which the terms of the trust cannot be amended or revised until the terms or purposes of the trust have been completed. Although in rare cases, a court may change the terms of the trust due to unexpected changes in circumstances that make the trust uneconomical or unwieldy to administer, under normal circumstances an irrevocable trust may not be changed by the trustee or the beneficiaries of the trust."

Since I do want to make changes with regard to the beneficiaries, how is it that we can make the change via the minutes and be in compliance?

You are missing the point of the definition of irrevocable, i.e. "under normal circumstances an irrevocable trust may not be changed by the trustee or the beneficiaries of the trust". When you read that in your mind, did you hear anything about a grantor or settlor changing the terms of the trust? The definition is correct, a trustee or beneficiary cannot change the terms, but a settlor can. The Settlor(s) is/are the only persons in the trust who can and Nevada Law also reserves that. The changes can only be done while the original settlor(s) are alive after that an irrevocable trust cannot be changed by new or successive settlors or in other words the trust is set in stone. Read NRS Chapter 163 also apart of the handbook and the governing law of the trust.

Under normal circumstances a successive settlor, trustee or beneficiary cannot change the terms of a trust after the original settlors death unless they go to court and prove the terms are causing undo economical burdens, these cases are rare and is written in Nevada Law, also see the trust terms after the definitions. Under Nevada Law an original grantor or settlor cannot even change the terms of the irrevocable trust unless that term is specifically written in the trust. Read the definition of Settlor, which is the very last definition on page 9 of the trust indenture.

NRS 163.160 Power of settlor; liability of trustee for breach of trust.
1. The settlor of a trust affected by NRS 163.010 to 163.200, inclusive, may, by provision in the instrument creating the trust if the trust was created by a writing, or by oral statement to the trustee at the time of the creation of the trust if the trust was created orally, or by an amendment of the trust if the settlor reserved the power to amend the trust, relieve his or her trustee from any or all of the duties, restrictions and liabilities which would otherwise be imposed upon the trustee by NRS 163.010 to 163.200, inclusive, or alter or deny to his or her trustee any or all of the privileges and powers conferred upon the trustee by NRS 163.010 to 163.200, inclusive, or add duties, restrictions, liabilities, privileges or powers to those imposed or granted by NRS 163.010 to 163.200, inclusive, but no act of the settlor relieves a trustee from the duties, restrictions and liabilities imposed upon the trustee by NRS 163.030, 163.040 and 163.050.

NRS 163.4165 "Reserved power" defined. "Reserved power" means a power concerning a trust held by the settlor.

NRS 163.560 Irrevocable trust not to be construed as revocable.
1. If the settlor of any trust specifically declares in the instrument creating the trust that such trust is irrevocable it shall be irrevocable for all purposes, even though the settlor is also the beneficiary of such trust.
2. Such trust shall, under no circumstances, be construed to be revocable for the reason that the settlor and beneficiary is the same person.

14. What is the difference between the Creator and the Settlor?

The creator is first mentioned on the first page of the trust indenture as the Drafter and Offeror and then again in the very first paragraph of the same document and only as the drafter. The Creator and Offeror's only job in the trust is to buy the assets from the Investor and sell the same assets to the Trust for the benefit of the beneficiaries.

This happens by the stroke of the pen and no assets actually go into the Creators hands. The creator holds no office or position in the trust what-so-ever. Per say, there is no place in the trust indenture where the creator drops out, that happens automatically as the Settlor with all Veto Powers, the Trustees, the Executive Director and Executive Secretary takes over the trust 100% by executing such documents. Again, the only job the Creator has is drafting the trust and moving the assets within the trust, that's is it! The receipts for the assets are built in the trust at paragraphs 4, 5, 6, 7 and 8 of minute one and also in paragraph one of the trust indenture the Settlor is the Investor. Again in paragraph two of the trust indenture receipt of the assets is given to the trust with management of the assets to the trustees for the benefit of the beneficiaries. Read the Trust and the Trust handbook for full understanding and anyone saying any different is completely wrong, period ending!

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