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The author of this information brief provides ONLY business services.  The author is not a licensed law, financial planning or accounting firm empowered to provide (1) legal services (2) legal advice or (3) financial planning services or (4) tax advice.

The information and concepts presented in this information brief have been garnered from sources deemed reliable at the time of rendering the information and from personal experience.  It is provided ONLY as a starting point in order for the reader to undertake his or her own investigation of the subject matter contained in this brief. 

Nothing contained in this information brief should be taken at “face value”, or serve as a substitute for (1) legal advice from an attorney (2) financial planning advice from a licensed financial planner (3) tax advice from an accountant or other licensed tax professional who is familiar with the facts and circumstances of your specific situation.

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THE LIVING TRUST

Sadly, even professional tax planners and attorneys assert that this single vehicle is “all that a person needs to avoid probate”.  While this may be true for some it is NOT TRUE for everyone. 

During our lifetimes we collect “stuff”.  I am not just talking about our collections of stamps, coins, bottle caps, baseball cards and the like.  I am also talking about jewelry, furniture, vehicles, your personal residence and all of the other things that we surround ourselves with in life.  In legal jargon, all this stuff is referred to as “personal property”.  Personal property is the most common “asset” people have to pass on to the generations that follow them.  The most common way people have to pass these assets to the generations that follow us is through a will and a living trust.

You should use a Living Trust ONLY for transferring furniture, collectables, personal effects, your personal residence, personal vehicles personal bank accounts, bank time deposits (CDs) and your retirement plans to your heirs upon your death. 

             REVOCABLE LIVING TRUST MYTHS:

 MYTH:    Living trusts protect assets held in the trust.

                                             Revocable Living Trusts and Asset Protection
                                                (Or Lack Thereof):

 In reality, living trusts provide NO asset protection at all for ANY asset held in the trust and all can be lost in a simple lawsuit.  It is ignored for creditor purposes just as it is ignored for income tax purposes.  In most states and for federal tax purposes, the law provides that if a Grantor has the right to revoke the trust, all of the assets held in the trust will be treated as if the Grantor still owns them.  Therefore, asset protection requires additional measures in addition to a living trust to effectually eliminate the risk of loss due to a lawsuit. 

MYTH:  Living trusts can transfer estates of any amount to your heirs tax-free.

In Reality, when the inevitable taxes and death intersect, the first order of business is to determine if the final estate owes any taxes.


To understand estate taxes you must first determine just what an estate is.   Basically, it is everything you own: your home and other real estate, bank accounts, investments, IRAs, insurance policies, collectibles and personal belongings.  Add the value of these assets together, and then subtract your debts to arrive at the estate's value.

Depending on how much you own when you die, your estate may have to pay estate taxes before your assets can be fully distributed.  Estate taxes are different from, and in addition to, probate expenses and final income taxes owed on income you receive in the year you die.

The federal estate tax is technically a tax on the transfer of property to others, generally to children of a decedent (the person who died). It was envisioned to prevent families from passing on huge fortunes and developing a type of royalty in America (but wait a minute, isn’t this what the wealthy do and exactly what we want to do to?).  The tax is levied on the deceased's estate as a whole, filed on a single estate tax return and paid out of the estate's funds.  

NOTE:  If the tax is levied on the deceased's estate as a whole, what if the biggest part of the “estate” was not “owned” by the deceased when he/she died?  The secret to wealth preservation is the separation of the major asset groups and income streams from the deceased’s estate by placing them in different non-probated structures.  By putting these major assets into separate trust vehicles they are not part of the deceased's estate and therefore can be passed in total to heirs without the fear of taxes, probate or anything else. 

MYTH:   Estates held in a Living Trust will pay no state taxes when the estate is transferred to heirs upon the death of the Grantor.

In reality, a number of states impose estate (inheritance) taxes on any property including the personal property of deceased residents of the state.  One tax rate may apply to all assets in the estate, or the rate may vary depending upon who receives what assets.  For example, a state may impose a lower tax rate on assets left to a child, as compared to property left to a distant cousin.  In states that have inheritance tax laws, taxes must be paid by the person who receives inherited property (as opposed to estate taxes which are paid by the decedent's estate).

Keep in mind that most states, (even if they technically have estate or inheritance tax laws), in practice follow what is known as a "pickup" system of taxation at the time of the decedent's death. Under this system, while a state tax return must be filed on behalf of the estate (or by a recipient who inherits property), the state's share of the tax comes out of what the estate is already paying the IRS.  In other words, in most states no tax will need to be paid beyond the amount that is already being paid to the federal government.  (See State inheritance tax laws at the end of this information brief).

MYTH:  Once you create a living trust, all your assets automatically go to your heirs upon your death.

In reality, a trust is only as effective as the steps taken to transfer assets into it.  You need to know that if an asset is not transferred to your trust the provisions of your trust do not apply to that asset.  Here again the prudent person would use different trust structures to hold different classes of assets and thereby avoid all potential probate concerns and tax traps altogether.

MYTH:  Your real estate, stocks, money and all other assets including your business should be placed into a Living Trust.

 First We Need To Set The Stage:          

A C-corporation (not an S-corporation or a Limited Liability Company or LLC (unless the LLC is primarily owned by a C-Corporation) is the most advantageous way to own your business and the stock of that corporation should be “held” by a Shareholder Trust (Business Estate Plan). By undertaking this process, ALL of your business assets such as; equipment, inventory, vehicles used by your corporation, accounts receivable, business property, leases and cash can
automatically be transferred to the ownership of the beneficiaries of your Shareholder Trust
when you die, avoiding state and federal inheritance taxes, lawyers and probate
no matter how large your business estate is.

                               What Exactly Is A Shareholder Trust?            

Essentially a Shareholder Trust is a revocable, intervivos trust (much like a “living trust”). However, it is a trust that is absolutely separate from your personal estate (living trust) for the purposes of state and federal inheritance taxes and probate.

         Why You Should Incorporate A Shareholders Trust Into Your Estate Plan?   

I recently received E-mail from a client who told me that her parents had died 6 years before leaving her and her siblings a business that was then valued at $13 million dollars. After over 5 years of legal entanglement her and her siblings were “granted” their share of the remaining estate. The total amount that was available for them all to share was a little over $600,000 dollars. Legal fees, court costs, probate fees and taxes had eaten up twelve million four hundred thousand dollars of the value of the estate that her parents had intended that her and her siblings were to receive.

 This is just one example of this “theft” of the future for the generations that follow after us. Worse still is it doesn’t have to be this way. If they had had a Shareholder Trust in place at the time of their deaths, this very simple solution would have eliminated the need for her and her siblings to pay ANY transfer fees, ANY lawyer fees, ANY estate taxes, and there would have been NO probate relating to the business for them to have to endure.

And best of all, the estate could have been transferred to the heirs simply by the heirs holding a shareholders meeting, electing new officers and bank account signatories for the corporation and then changing the signature card at the bank. That’s about all there would have been to it.

                                       Asset Protection, Business And Estate Tax Benefits:        

The Shareholders Trust (Business Estate Plan) incorporates the use of a C-Corporation (or an LLC owned primarily by a C-Corporation but NOT an S-Corporation) because it is the ultimate business vehicle to provide asset protection for your business assets and for dramatically reducing your business taxes while you are still alive. When you couple this business strategy with a Shareholder Trust, you have also created the best possible business estate preservation strategy as well.

                              Introducing The Business Estate Plan That Never Dies:   

Many creative estate-planning strategies have been developed using C-Corporations. The reason for this is that C-Corporations are generally more flexible when passing business assets to heirs than living trusts.

In addition, unlike ALL other forms of business structures (Limited Liability Companies (LLCs), partnerships and S-Corporations), the C-Corporation is the only structure that “stands alone” for tax purposes. All other entity types are what is called a “pass-through” structure, meaning they are not tax paying entities in and for themselves, and pass the taxability directly to the tax returns of their owners, where they will have to pay the maximum in taxes if they are people and not an entity which are taxed on your “gross” income (OUCH) not the “net” income as is the case with the C-Corporation.

Here IS A truism That YOU should understand:

Individuals receive income, pay taxes and then buy things (and pay bills) with whatever money is left over (after taxes are taken out).  This taxability is based on the full “gross” amount of the individual’s income.

Conversely, “C” Corporations receive income, buy things needed for the operation of the business and pay corporate debts with “pre-tax” dollars and then pay taxes on any money that is left over.  This taxability is based on the “NET” amount of the C-Corporation's income.

                               “A Corporation Never Dies; It Just Gets A New President.”          

C-Corporations are immortal. They can live far beyond their original incorporators lives unless terminated by statute, by not filing state required reports or by its corporate articles. Additionally, corporations do not cease to exist just because one of its key people happens to die.

                                   The Bottom Line Relating To Business Estate Planning: 

To recap, by incorporating a Shareholders Trust into your estate plan, when you pass on to the “happy campground in the sky”, your heirs will already own your business by contract (the trust) and there will be no transfer, no probate, no estate taxes – and best of all – NO PROBLEMS.

 It’s Really That Simple:    

Almost without a hiccup, the corporation (and your entire business estate) can move on to the next generation in total. Your heirs are the beneficiaries of the Shareholder Trust and can add new beneficiaries as new generations join the family, thus continuing to pass the business estate on to succeeding generations. Best of all, you while living, have complete control of the corporation, its assets, its money, and its real estate — everything. You can sell these assets or add to the assets, pay for any and all normal business expenses and those expenses incurred by the trust for as long as you live.

 The bottom line Relating To Business Estate Planning: 

What can otherwise take years of legal delay, astronomical expenses, waste and agony for the ones you love is accomplished by them simply by holding a stockholders meeting and electing new directors and officers and bank account signatories.  That’s it, your business continues as usual without interruption.

 
THE LAND TRUST (Real Property Estate Plan)
 
Use a Land Trust to hold “vacation homes”, commercial property, vacant land and rental real estate.  For many people, buying, holding and selling real estate has paved the road to wealth.  It is not uncommon to find “folks” with upwards of 5 or more pieces of property.  The down side for the uninitiated is that if all the real property plus the personal property that a person owns were held in a Living Trust it is very easy to imagine how the combination of these assets might put them over the statutory maximum and force their heirs to have to “liquidate” part of the estate just to pay the tax burden heaped upon them BEFORE, they could receive the blessing of the estate that was left to them. 

In America, most states expressly recognize the use of trusts. A handful of states also specifically recognize the Land Trust by statute. The first state in which Land Trusts were used was Illinois, hence the nickname “Illinois Land Trust.” Most states have at least implicitly recognized the validity of Land Trusts by way of court rulings (“precedent”). No state has enacted any laws making it “illegal” (civilly or criminally) to use a Land Trust.

                                                            WHAT IS A LAND TRUST:                      

Essentially a Land Trust is a revocable, intervivos trust (similar to a “living trust”). A Land Trust is a simple, inexpensive method for handling the ownership of real estate. It is a contractual; arrangement by which the trust holds the recorded title to the real estate, but all the rights and conveniences of ownership are exercised by the beneficial owner(s) (beneficiaries) and where the beneficiaries of the trust retain management, control and the right to receive profits from the property. This method of owning real estate eliminates many of the difficulties that otherwise may be encountered in acquiring, owning, or selling real estate.

Once transferred to the trust, the beneficial ownership interest in the real estate is considered to be personal property, and is treated in much the same manner as the ownership of a car, a savings account, or other tangible property. 


       GRAPHIC DEPICTION OF THE LAND TRUST STRATEGY

 

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 BOOKKEEPING AND ACCOUNTING

If you would like to inexpensively get your business bookkeeping done without having to learn Quickbooks or any other software program, I have the solution for you.  This process has been successfully employed by a whole lot of businesses and people with average intelligence to do their bookkeeping.

The process is astonishingly simple.  It utilizes a large envelope (to hold your receipts) and a few pre-printed pages showing the needed “chart of accounts” numbering clearly marked for each item in order to easily record all your business expenses, no matter what type of business you operate and no matter what type of business entity you operate through. 

This process only takes about 1 hour per month to complete.  All you do is write the corresponding number that relates to each expense item on the receipts and then you write the totaled amount in the appropriate space on the pre-printed pages.  Then put all the receipts in the large envelop and staple the completed pre-printed page for that month to the envelope.  Designate 1 envelope for each month of the year and a 13^th envelope for your annual report for tax return preparation.  It is really that easy!!!

Once you have completed filling up the pre-printed pages for each month, total all of the receipts in each category and you can then easily prepare the simple profit and loss report that is also included at no extra cost in the package. 

At the end of the year, you can easily prepare a final accounting/bookkeeping report showing the total income and expenses your business has had during the preceding year and a final profit and loss report to provide to your tax professional for the preparation of your business tax return(s).

In my years of undertaking this process, I haven’t needed to pay for much accounting or bookkeeping time for the preparation of my business tax returns.  In fact my accountant averages only about 1.5 hours to prepare my corporate tax return saving me a ton of money.

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                                BUSINESS TAX CONSULTANT

In today’s business world, besides making money, it is equally important that you account for all the income your business earns and that you take maximum advantage of all the deductible expenses that your business has. 

To that end, I would like to introduce you to Richard Thompson.  For many years he was an attorney practicing law in California and other states as well as the federal courts in the US but gave up his practice to move into domestic and international taxation for fortune 500 companies many years ago.  He is also a barrister (English Attorney) as well. 

By having a background in law as well as US and international taxation, he is an excellent resource for anyone needing tax related consultation and/or business and personal tax return preparation. 


To inquire about pricing for the bookkeeping manual and accounting services, please email to info@signetgroup.us or click the online store tab on the top.