FAQS Page 4


Can beneficiaries convey assets into their Trust and draw the Principal out tax free?
Yes, they can transfer assets into the Trust, BUT (1) the Trust owns the asset, (2) they can never take back the asset without buying it from the Trust, and (3) they take a Demand Note for their cost or basis in the Asset. The principal payments on the note are tax free payments. The interest on the note will be taxable income and must be reported and taxes paid each year. The demand note is the payment for the transfer (sale) of the asset to the Trust.

How is the household furniture value used?
Household Furnishing can be valued at the amount up to the value authorized by your homeowners Insurance Policy (usually about 25% of

Frequently Asked Questions

insured value of a home). Lump all household furniture, fixtures, appliances and other household items as one item = Household Furnishings using a value up to 25% of insured home value. This must be listed on (or attached to) the Notarized Bill of Sale.

What is the purpose of putting “equipment” in the Trust?
The Spendthrift Trust does not take depreciation on business assets it owns. All business assets are sold to the Beneficial Trust at Book Value (Cost less Depreciation taken) There is no need to generate a tax deduction of the business when the business now will Lease those assets and intellectual property from the Beneficial Trust and deduct the Lease Payment as an expense. The Beneficial Trust reports the Lease Payments as Lease Income and that income is Passive Income and tax deferred per IRC 643B. When an asset is sold from the Beneficial Trust and sale generates a Capital Gain, that Capital Gain is deferred per IRC 643B?

When should I move assets into the Trust in order maximize savings?
Let’s say both husband and wife are retired. The only income they’ve had so far are these three categories; a) around 6 weeks of 1099 income from my husband working for his previous general contractor. 1099 Income is Business Income and cannot be income to the Trust. You can have checks direct deposited into the Trust to fund the Trust, but the Income will still be recorded on a Business Tax Return. b) Some interest and dividend income from bank and brokerage accounts. If the account has been legally moved to the Trust and the Interest and Dividend income is Reported using the Trust’s Name and EIN, this income will be Tax Deferred. c) Rental income from three local rental. This will be the same as above. If the Rental Properties are legally sold to the Trust, the Rental Income will be Tax Deferred.

If a husband or wife earn future 1099 consulting income, is there a way to put that income directly into the Trust for tax purposes?
No, this is Business income. Checks can be direct deposited into the Trust to fund the Trust, but the income must be reported on a Business Tax Return (Business Trust, LLC or probably a Schedule C in this case.)

I will be purchasing a new rent house that I would like to directly deed into the trust. How do I sign the Purchase & Sale Agreement and how will the Owners Name be listed on the Warranty Deed?
All Sale Papers and the Deed must be in the name of the Trust and the Trustee will sign all papers with “TTE” behind their name.

I’m involved in three apartment properties. My LLC is on the management side as well as the investor side. Management income on all properties will come to the LLC. Should I file a manager change with the Secretary of State’s Office and make the Trust as the manager and remove my name completely? Is there another way to move the LLC into the Trust?
Once the Rental Property is sold and deeded to the Trust, the Trust is the Manager. All income and expenses are recorded in the Trust. Rental Income is Passive to the Trust and is Tax Deferred. The LLC’s will then have no function with Rental Properties. Your Trust can do all of that. Close the LLC’s after the property is sold and deeded to the Trust.

I’ve added all assets I’ll be moving into the Trust on the Purchase of Assets & Liabilities sheet. Should my husband and I both sign with a witness to prove agreement in moving to the Trust?
The Purchase of Assets and Liabilities Form is for my info only and is not a legal sale to the Trust. You must use a Notarized Bill of Sale for all assets SOLD to the Trust. A Notarized Deed must also be used of Buildings and Land. I use the Purchase of Assets and Liabilities Form to property construct your Trust’s Balance Sheets and give credit to your Demand Note.

Can we sell the property in the trust at any time?
Yes. The trust can sell any asset it owns at any time. There is no “seasoning” with trust asset sales.

Suggestion for how a beneficiary should be set up.
Your Trust is a Discretionary Trust and the Trustee (at his or her discretion) can add or remove beneficiaries at will. An individual with a US SSN would be the Trustee and the others would be designated Beneficiaries.

Can a Trust make donations to churches and charities?
Yes, any Trust can make a Charitable Contribution to a 501c3 organization and take the deduction on the trust tax return.

Who is the beneficiary on a Charitable Trust? What would be the best wording to use for beneficiaries if you don’t want to put individual companies down?
Charitable Trusts are not 501c3 but make contributions to 501c3 organizations and these 501c3 organizations do not need to be listed as beneficiaries of the Trust. Non 501c3 organizations doing charitable works must be named as a beneficiary to receive funds from the Trust. These funds would be reported to the beneficiary on a K-1. If the non-501c3 “work” (i.e.: distributing bibles to China) is a function of the Trust, then the expenses incurred would be authorized expenses of the Trust. A Charitable Trust is a Trust for the benefit of Charities, Charitable Benefits, Religious Causes, Religious Works, Churches, Education, Academics, and all Charitable Works as its function.

How do I give to a ministry?
Donations/contributions to a 501c3 organization are fully deductible by the Trust as charitable contributions. A payment made to another trust or foundation that is a beneficiary would create a K-1 to that trust or foundation. If the 2d trust is also a Spendthrift Trust that K-1 income would be Extraordinary Dividends to that Trust. Giving funds to any person or organization not a beneficiary of your trust and not a 501c3 organization will create a Form 1099 issued to that person/organization. Most ministries and missions work through a 501c3 organization – give the funds to the 501c3 organization and designate the donation for the benefit of the ministry/missionary

What method do I use when giving to a ministry?
Trust checks are all you need, but the Trust can transfer funds bank to bank or even wire the money. Be sure to keep the receipt. A Charitable Trust can have beneficiaries that are not 501c3 organizations but are organizations that do “charitable work”. As such, they will receive a K-1 and can deduct the charitable work expenses from the K-1 income they get from the Spendthrift Trust. Also, the Charitable Trust can deduct all expenses it incurs doing charitable work directly.

Can I charge Trust expenses to my personal Credit Cards and then pay them off with Trust funds?
A Spendthrift Trust cannot hold a Credit Card because the issuing agency could not collect on default.