My Take On What To Do

I certainly do not have great wealth myself, but in over fifty years of personal experience in business, estate and personal law matters, I have been in contact with many who do, from having been very successful, and who could use advice on what to do. Building wealth and security for yourself and your family and for other goals, whether charitable or personal, can be and is done by many.

Keeping it and effectively applying it to such uses is another matter and needs technical knowledge. There are many wonderful advisors who can help. Some work for large organizations, others may be excellent individual investment advisors, lawyers, estate planners, etc. I have worked with all kinds throughout the world.

There are naturally many complexities, since laws of different places, taxes and government policies affect what can be done. However, most people want a simple understanding of the overall picture, There are marvelous opportunities that are completely legal. Who are these people, what can they do for you and are they worth using?

In this section, I'll try to put together an explanation. This is straight, legal and frankly more than most advisors will explain.

Where Did Trusts Come From?

I will spell out below in a brief way the origins and history of the wonderful legal instrument called the trust. However, there are really only a few points you need to understand. (I really cannot understand why most experts do not start with these.)

By moving the title (legal ownership) to various assets into a trust “owned” and controlled by another party, you can shield them from outside legal claims, many kinds of taxes, government seizure, and even laws controlling claims by family members such as heirs. Use of trusts is not limited to estate planning, but it is an awfully valuable tool for that purpose and for running a business.

When you designate that other party to own the assets, he is required to honor your wishes absolutely about how they are used and transferred. A form of contract called the “trust instrument” does that. The other party or parties is called the “trustee” or “trustees.” There is a very strict fiduciary relationship enforceable by law under which the trustee must avoid self-dealing and respect the terms and goals of the trust.

Keep in mind that a trust is a legal instrument and is governed by the laws of the place where established, not where the grantor lives. To benefit from the best laws, the title of the assets must be held in that place through a trustee or co-trustee there. For example, to use South Dakota's favorable laws, one must also use a co-trustee there.

“Trusts” are one of the outstanding contributions of the English Common Law, expanded over the centuries from the concept of “Uses” in the feudal land ownership of the twelfth century, where an owner, say, a Crusader, put his ownership of land in the hands of a fiduciary while he was unavailable and wanted to assure its use to be for the benefit of his children, or where he was unclear whether his wife could legally hold a military-titled estate or property. Uses were later restricted by Henry VIII’s “Statute of Uses” in 1553, but further developed as trusts in the courts, and ultimately even more widely used in the United States.

Today, despite some efforts by those who want to control choices about how assets are used (e.g., governments, family members, creditors), trusts have become a key tool in asset protection and decisions about how wealth is used. They have withstood attack for centuries!

In other words, trusts are a legitimate, respected tool with a very long tradition in English common law and American history. They are absolutely not limited to the ultra-rich and their families, though one guesses that all of those who have high net worth and who can plan and take responsibility use them.

Think about it. Any moderately successful person who owns a house, a car, savings, professional or office tools, etc., whether or not considered "rich," is apt to have enough assets to warrant protecting them. Trusts are a key means of doing that.

For more on the history of trusts, take a look at the currently best and quite outstanding treatise by John H. Langbein, History of the Common Law (2009). John is the distinguished retired Sterling Professor of Law at Yale University, and a profoundly brilliant scholar and writer, despite having gone to high school and college with me!

John is also the author of the term, “Try not to die in Connecticut,” for reasons he amply explains, including historically exorbitant court fees, widespread corruption, high taxes and arbitrary powers of judges. See How Did Rich Connecticut Morph Into One Of America’s Worst Performing Economies? Forbes magazine 8/01/2013.
His observations could apply to many other states, from what I have seen. Believe me, some are far better than others!

What Do Trusts Do?

As noted, to create a trust entity, one enters an agreement with another party who promises to hold assets and perform tasks in accord with certain instructions.

The other party, called the trustee, “owns” and controls those assets for the benefit of the grantor or his designees, who may be family, friends, charities, or whatsoever. There may be multiple trustees and multiple beneficiaries.

I said the trust is an entity, but in fact it is really a contractual arrangement.

Today, trusts are an incredibly useful tool. For example, they can be used to keep assets out of the estate of the grantor at death. That means ownership can be kept secret, not subject to publicity when the grantor’s estate is made public in probate court proceedings. They can avoid the sometimes very heavy financial burden of probate court proceedings and the inheritance rules imposed. A trust can take the place of a last will, as least for those assets. (Typically, one should have a will anyway, to provide for other assets and family matters.)

Because the title to the assets has been transferred, ownership of those assets, depending on the terms of the transfer, may not be subject to tax on the grantor or claims (such as lawsuits) against the grantor.

Specifically, the assets may possibly be exempt from federal estate tax, if handled right. Moreover, if they are placed in trust in the right location, they definitely will be exempt from state and local estate and inheritance taxes too, which can be a tremendous savings today. (Consider that New York, California, New Jersey and Connecticut already impose over 13% tax on the top tier of income, which is avoided when assets are moved to non-tax states.) Read How Money Walks, cited elsewhere.

Aside from tax and government costs, when properly done, transfer of assets to another party shields them from claims by persons who will try to take them away. Lawsuits regarding business disputes, personal injury, claims, family disputes, etc. are examples of that.


Who Uses Trusts?
When To Use Trusts
Why Trusts?
Threats To Your Goals

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