FAQS Page 7


What happens to a loan if the Trust closes?
Per the Trust Document – all balances (assets & accounts) must be distributed to the beneficiaries when the Trust is closed. Any outstanding notes/loans would have to be paid off before the distributions. Although; (1) don’t close the Trust, extend it another 21 years just prior to the 21year period ending and (2) be sure there are Successor Trustee(s) and Compliance Overseers named so someone else can take over if something happens to you.

Can my personal work checks be issued in name of Trust?
You can have your check direct deposited or endorsed to the Trust Bank Account but not issued in the Trust name. The W-2 would still be reported as personal income and listed on his personal tax return.

Frequently Asked Questions

What is the purpose of the Chart of Accounts?
The Chart of Accounts are used to identify categories for Income, Expenses, Assets, Liabilities and Equity in the Trust. I need all Income, Expenses, Purchase or Sale of Assets and payments on Liabilities (Note Payments) or adding new Liabilities (new notes) categorized so I can produce a valid Financial Statement for the Trust each year and produce a Tax Return for the Trust. The Beneficial Trust is run like a business (but not a business) in that all income and expenses must be reported, and receipts must be maintained for all expenditures. My computer program imports this income and expenses directly using the Charts of Accounts to identify the proper category to produce a correct Financial Statement and Tax Return.

If my wife and I start out as Co-Trustees and Co-compliance officers, can we easily amend that later to one of us just being the Beneficiary?
A Trustee or Compliance overseer can resign at any time and then the Co- Trustee will take over. If no Co-Trustee, then the Successor Trustee/Compliance Overseer will take over. I usually recommend that one spouse be the Trustee and the other spouse be a Beneficiary. Since the Trustee is a Fiduciary Role and has no ownership of any of the Trust’s Assets there is no conflict with this procedure.

If couple divorces, who owns property within the Trust?
If all your property is legally sold to the Trust, neither party has any right to any of the property. The Trust owns the property, not the individual.

Whomever the Trustee names as the Successor Compliance Officer and Successor Trustee have no powers until the Trustee dies or resigns, correct?
Yes. The successor can remain and beneficiary until they assume the role as Trustee or Compliance Overseer. You cannot be a Beneficiary at the same time as being a Trustee or Compliance Overseer.

What powers does the Settlor have?
The Settlor has no power after they convey the Trust to the Initial Trustee.

Why does the Settlor have to give their Social Security number if there aren’t tax consequences for them?
Sometimes the Settlors SSN is used to get the Trust’s EIN before the Trust is conveyed to the Initial Trustee.

Can a non-US be a beneficiary of this trust?
A foreign national can be Beneficiary as long as they do not take Taxable Distributions from the Trust that would require a K-1. Otherwise, they will need a US SSN or ITIN.

If I take a loan, can I set up insurance policies as the collateral, so that when I die the Trust would be beneficiary for the death benefit, which would cover the loans?
The Cash Value of the insurance policy when transferred into the Trust can create a Demand Note and you can take principal payments tax free from that Demand Note. Your Demand Note at your death would go to anyone you designate. If you take a loan from the Trust, then you will have to make periodic payments to the Trust of principal and interest with a set amortization schedule. The insurance policy as collateral will still be needed in order to take the loan from the Trust. The Trust must have a means of collecting on the loan should you fail to make the required payments- just like any other loan from a bank etc.

If I take a loan from the Trust and set up a repayment plan, what do I use to repay the loan with?
If you take a standard loan FROM the Trust, you repay the loan as you would with any other loan – from personal funds. If you transfer an insurance policy to the Trust, the cash value can create a Demand Note to them. If a Trustee or Beneficiary takes a loan from the Trust, the loan must be repaid per an amortized schedule.

When can loans be utilized and by who?
“Anyone” can take a loan from the Trust, BUT (1) the loan must be amortized with periodic payments with interest paid, and (2) the loan musts be backed by collateral (the Trust must have recourse if the loan is not paid back).

Can I pay for health insurance out of the Trust?
The Spendthrift Trust can pay for education and medical for the Trustee and the Beneficiaries. Expenses must be paid directly to the provider and not to Trustee or Beneficiary.

Can the trust pay for something such as, cosmetic surgery?
Personal expenses are not authorized expenses. If a doctor orders the procedure for medical reasons, then it is an authorized expense (i.e. doctor prescribes a pool for therapy – the Trust can pay for the installation of a pool).

Can the trust pay for alternative medical treatments for wellbeing; mediation retreats, reiki, acupressure, acupuncture, etc?
If any medical treatments are doctor recommended or you feel are necessary to keep you healthy, then they can be a trust expense.

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