A New Beginnings Trust and Super Asset Protection | 509

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New Beginnings Trust

A New Beginnings trust is a must for every entrepreneur! Don’t wait to get caught up in a lawsuit; put your business in a trust today! Learn the basic concept of asset protection, the term under which you can have a spendthrift trust, and a practical example of a New Beginnings trust. 

New Beginnings Trust

What You Will Learn About A New Beginnings Trust and Super Asset Protection: 

  • The basic concept of asset protection
  • What a trust is
  • What a spendthrift protection means
  • The term under which you can have a spendthrift trust
  • A practical example of a New Beginnings trust

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Transcript:

Matt Theriault: Hey, welcome to another episode of Tax Hacker Tuesday, and just a quick note before we get on with the show, a quick note about paying less to Uncle Sam this year. Waiting until April 14th, that’s not the time to do it. There’s nothing you can do, there’s nothing your CPA or tax preparer can do at that point, and December 31st, that’s not the time to do it either. It’s too late. Besides, your CPA will probably be ringing in the new year and not picking up the phone on December 31st. So if the thought of writing that big check to the IRS is as nauseating to you as I remember it being for me, then the time to deal with it and minimize the amount that you have to pay, that time is right now. We’re in the fourth quarter. Tax planning needs to happen right now.

I mean, consider this. If I offered to give you $2,000, I’ve got $2,000 in my hand, and I offered to give it to you for $1,000, meaning you give me $1,000, I give you $2,000 back, would you make that trade? Of course, you would. You’d double your money with that simple exchange. It’s what we call a no-brainer.

Well, that’s the very offer that Tim Berry has been extending to you all year long with The Tax Hacker Blueprint, normally $3,000 a year for this level of planning and consulting that he’s offering, and the introductory offer is half off, just $1,500, and if Tim and his team can’t save you at least double that, then it’s free, you pay nothing, so go to taxhacker.com, grab Tim’s free book on how to navigate the loopholes in Trump’s new tax plan. You’re going to need that, and, after, you’ll have an opportunity to schedule some time with Tim and his team and just let them know that you heard this on the Epic Real Estate Investment Podcast, and tell him you want your Tax Hacker Blueprint. Go to taxhacker.com, and everything you need is right there. Alrighty? Now, on with the show.

Speaker 1: This is Theriault Media.

Did you know that up to 50% of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn’t it about time you play on a level playing field with the wealthiest 1%? Now you can. Tim Berry, attorney at law, shares here each and every week current tactics and strategies that anyone can implement to hack the tax code. Protect your assets and keep what’s rightfully yours. It’s time for Tax Hacker Tuesday.

Tim Berry: A new beginning trust. Well, what exactly is a new beginning trust? Well, a new beginning trust is a way to hold your assets, so it makes it very difficult for judgment creditors … those people who win a lawsuit, to take an asset away from you.

And let’s go into a basic concept of asset protection. The basic concept is this: whatever rights you have in the property, your judgment creditor is going to have the exact same rights. To put it in a different way, they step into your shoes. Whatever rights you have, they have the exact same rights. If you have $100 in your pocket and you could take it out and spend it any time you want to. If you lose a lawsuit, the person who won that lawsuit is going to have that right to grab that $100 out of your pocket and spend that money any way they want to.

So our goal is to make it so that your right and your assets are somewhat limited. Now, they’re not totally limited. You’re still going to have control. But you just don’t have complete unfettered use of your assets. We want to make it so if a creditor steps into your shoes, those shoes are just a little bit uncomfortable for them.

Now how are we going to do this? What we’re going to do is we’re going to utilize something called a trust. And a trust is basically a contractual arrangement between three different parties. We have the first party, are the grantors of the trust. They’re the ones who create the actual trust. They say what terms and conditions are going to be in the actual trust agreement. Then they also name who is going to be the trustee of the trust. And the trustee of a trust is the one who manages the assets of the trust. They’re the ones in complete control of the trust.

And then finally, we have my personal favorite role to be in is the beneficiary of the trust. The beneficiary is entitled to receive the benefit of the use of the trust assets.

So this is the basic concept of trust … we have the grantors who create the trust. We have the trustee who manages the trust. And then we have the beneficiary of the trust. Now the thing is one you decided to do a trust, that’s the starting point because not all trusts are created equal. Now at the very least, we want to make sure that the trust has something called spendthrift protection.

What does spendthrift protection mean? Well, let’s go back to the early days of trusts. A lot of times trusts were created by mom and dad because they knew they had a kid … let’s just call him Junior, who went out and spent way too much money. So they wanted to be able to protect Junior from themselves. So what they did was they created a trust and they said, “Junior, we know you’re a spendthrift. And so we’re going to let you know right now that you only get whatever we want you to get from the trust. You don’t receive any more than that. And not only that, but you can’t borrow money based upon the value of the trust ’cause the trust document’s going to say you can’t do that.”

So that’s something called spendthrift protection. In modern days spendthrift protection is just some language inside a trust document that says nobody can take away the beneficiary’s right to the trust assets and nobody can place a lean on the trust assets. A key point here … in order to have a valid spendthrift trust, in most states the grantors, the one who creates the trust, can not be the same person as the beneficiary. This is very important.

So once again in order to get the baseline level of asset protection, the spendthrift protection, the grantors, the creator of the trust, cannot be one of the beneficiaries of the trust.

Let me give you an example of this. A lot of people, their knowledge of dealing with trust is based upon a living trust. In a living trust, the grantors are the individual who sets it up. Then they are also the trustee and then they are also the beneficiary. Now knowing what you know now about trust and spendthrift trust, in particular, does a living trust give anyone any asset protection? The answer is no.

If you establish a living trust, you are not going to have any asset protection. Once again if you establish a living trust, a living trust does not give you asset protection.

So what do you think we need to do in order to have the trust give you asset protection? Well, we’re going to do a slight twist. What we’re going to do is we’re going to go to your parents. Mom and dad. And it doesn’t have to be your parents, it just has to be someone who genuinely cares about you. Someone who truly would set up a trust and put assets into it for your benefit.

It can’t be Joe the taxi cab driver down the street. That’s going to be a sham. What you do is you go to someone who genuinely cares about you. You say, “Mom, Dad, what I would like for you do is I would like for you to create a trust for my benefit.” So mom and dad are going to be the grantors of the trust. They’re going to create the trust and they’re going to put in the terms and conditions of the trust. Then they’re probably going to appoint you … and this is the key point here. This is kind of a mind-blower for a lot of people.

A lot of times what we can do is we can say that you, you are going to be the trustee of the trust. So now whenever you go to make any decisions about how the assets are going to be invested, who are you going to have to ask for advice on? Yourself. You’re in control of the trust assets. Whenever you want to make an investment, you make the investment. You are the trustee.

And the other cool thing … who’s going to be the beneficiary? You. You and your family are going to be the beneficiaries of this trust. So what we’re doing is we’re having mom and dad create a trust. They’re going to sign a document. And by the way, a lot of people say, “How much liability do Mom and Dad have in this thing?” Well, their liability is pretty much zero. They signed the document and they walk away. Then they leave the trust, the administration, and the management of the trust to you. So now it’s up to you on how those assets are going to be invested, how the trust is going to be handled, and ultimately you are the beneficiary.

Now here’s the cool thing. Let’s say that something awful happens and you lose the lawsuit and your judgment creditor comes after you. They can’t touch the assets. Your assets, these assets inside the trust … I said ‘your,’ it’s wrong there. The assets owned by the trust are not yours. You don’t have complete unfettered control over those assets. You have to abide by the trust document, and if the trust document says those assets can’t be assigned for the benefit of creditors … viola.

They step into your shoes, you’re bound by certain terms and provisions of the trust, they’re now bound by certain terms and provisions of the trust.

Now, this sounds incredibly simple and it’s not as simple as it sounds. I’m oversimplifying quite a bit here actually. But let’s get down to the basics. Has this been tested and has this ever worked before? The answer is yes. There’s been a number of cases in regards to these types of trusts. But let’s just go over one basic case that took place in bankruptcy.

In this case, what happened was this: mom and dad established a trust and it was for the benefit of Junior. Junior just so happened to be the trustee of the trust as well. So if Junior wanted to go out and buy a shiny red Ferrari, all he had to do is talk to himself and say, “Hey, trustee, will you be so kind as to distribute out of the trust for me to buy a Ferrari?” And the trustee, who is Junior, would probably say yes.

So Junior had control over the trust assets and he was the beneficiary. Junior goes into bankruptcy. The trustees, the bankruptcy trustee, they get paid on commission and they see that Junior had about $120,000 inside this trust. So the trustee says, “Hey Junior, just hand over the $120,000. I would like to take it over now.”

And Junior says, “No, I’m not going to do that because I have a spendthrift trust. My trust is not subject to the claims of creditors and you, a bankruptcy trustee, are a creditor.” Well, bankruptcy trustee didn’t like this one bit, and so bankruptcy trustee says, “You know what? We’re going to court.”

Well, the judge heard the case, he banged down on the gavel, and guess what? The bankruptcy judge said the bankruptcy trustee was not allowed to take away the assets. Now the bankruptcy trustee didn’t like this so he appealed the decision and whenever it went to the appellate court, the appellate court looked everything over and said, “You know what? Junior’s parents create a valid spendthrift trust. Junior has limitations on what he can do with those assets. Bankruptcy trustee, you step into his shoes. You’re going to have the same limitations. One of those limitations is he cannot use the assets in the trust for the benefit of his creditors, so bankruptcy trustee, fly away.”

So that at it’s most basic is the new beginnings trust.

Speaker 1: That’s it for today as we dream of a tax system that works just for you. But until then, you have Tim Berry. See you next Tuesday for another episode of Tax Hacker Tuesday.

Matt: Hey, Rockstar. If you have a question here for Tim that you’d like him to answer on the show … anything tax related, anything asset protection related, go to taxhacker.com/questions. Post your question there and we’ll answer it live right here on Tax Hacker Tuesday.