All About Trusts - Misuses And Uses (How To Avoid Trust Scams)

Hey guys, I'm Toby Mathis with the Anderson Business Advisors podcast. I am very lucky today to have Brent Nelson, who is another attorney who works with wealthy international clients. And I love picking the brains of people like that. First of all, welcome, Brent. Thanks for having me. It's always a pleasure to see you, Toby, let alone talk to you. Hey, we could do both. Yes, it's even better this way. I see you have some kind of bar set up in the background, so I don't have it. I don't know why we missed happy hour, but talk about it.

The sad thing is that none of them are open. I just like to pop. I am not. I have some, not far from me. Like, I have some, I had some bottles of wine. So every now and then, towards the end of the week or so, I look to my left and see them and think, you know, maybe this working thing is going to be okay. Us. It's 5:00. Someone has to do it. Yes. Yes. No, I can appreciate that 100%. Yeah, every once in a while I keep my strong drink in there and someone points to one of the bottles and says, Hey, is it such and such?

Yes. Why is it still full? Actually? Yes. The why. And I'm not good with strong alcohol. But anyway, let's talk about

trust

since we're talking about things that. Well, I guess we can't say that alcohol is strong in moderation. Maybe we should call this

trust

and moderation. Stress in moderation. Yes. Yes. Use with caution. Yes. I want to talk about all the bad things, because I don't know about you, but I've seen these promoters everywhere showing you that you don't have to pay taxes if you put your business in a trust. . You don't have to pay taxes if you have your investments in a trust and all that.

And I remember going through this, ten or fifteen years ago, where we had pure trust and then constitutional trust. Can we let some of that stuff sit and just dive in? I mean, first of all, have you been watching it? Secondly, how do you feel about it? I've been looking at it and I feel like it doesn't work. But the more detailed answer is that, first of all, this is as you say, this is an idea that is not new and that somehow it is recirculated periodically and that somehow if the money is funded in a trust and, for Therefore, no one pays any taxes on the money.

Well, okay, you need to go back two steps chronologically. First of all, you are talking about the money you earned with Mega and then you try to keep it in trust. And we don't allow you to do that and escape paying taxes. We have this very good doctrine that was created by the courts called the Allocation of Income Doctrine, which basically says that if you earn income, you must pay taxes on it. You can't just pass it on to someone else. So even if we hypothetically assume that this is not true, let's just hypothetically assume that the trust did not have to pay any taxes.

The income allocation doctrine would say: No, that doesn't work. Okay, so just because that's not enough, we have these rules called grantor trust rules that would prevent someone from creating a trust for themselves and, in many cases, their family, because they like to maintain control over these

trusts

. . And then not pay taxes for it. So what happens is you put the money in the trust, then you're a beneficiary of the trust, and you think, Oh, great, now I don't have to pay taxes on the money. Even if you got over this income allocation issue. Well, the answer is not so quick because the graduated trust rule intends that you still own what is inside the trust and therefore you start with the income and therefore pay taxes on it.

So it's kind of okay. And I know that conceptually that idea is strange because it is not reality. Maybe you really put the money in the trust and you don't really have the money. But, for tax purposes, we simply pretend that the trust does not exist. We like it because. You. You could ignore the trust and could tax it as if it were yours. So for an asset protection trust, it's actually very helpful to have a guarantor trust. But that's not what these scammers are doing. These guys go right to the Hey, this is a complex trust and I can

avoid

all the taxes by reallocating it to Corpus and all that other stuff.

Yes. In my opinion, they are simply destroying the code. But I'm curious to know your opinion since you are an expert in this area and probably have to deal with it on a day-to-day basis. I think they most likely are not circumventing the rules of the grantor trust, even when they say they are. So I think that's the first thing. People don't realize how strict those grantor trust rules are. They exist to prevent you from not paying taxes on income that is held in trust. So it's very difficult to

avoid

if you have any interest in the trust or, you know, if you actually maintain any kind of control over the trust.

Suppose you could overcome that. So, again, you are earning income and you are transferring it to the

trusts

. You have this revenue allocation doctrine that says, no, that doesn't work. You have to pay taxes on the income, even if, say, what you actually did was donate it, let's say, as business interests to the trust. And it was really a complex trust, meaning it's a grantor-less trust. Well, we have rules for that too. And those rules say that someone between the trust and the beneficiaries of the trust must pay income taxes for federal purposes. Well. So even if you park this in a state that doesn't have state income taxes, that only solves the state income tax problem, which I think is the half-truth they tell you in some of these promotions.

Good. That we can come back to that for a second. But if. They do the names and the hits and everything. Yeah. They say, hey, we can avoid the California tax or something. That right. Which yes, maybe you can, but that's a state tax, not a federal tax. And then it also turns out that these complex trusts, if they retain income, so they're going to pay income on the profits, they pay taxes at the highest rates, at the lowest levels possible. And then the fiscal impact is not only that taxes are not saved, but that higher taxes are paid.

And just put it into perspective. Is it like, hey, I made 15 grand and I'm going to be in the highest tax bracket? Yes. Basically I am. This really? Yes, I tried. I just like it, let's be honest. It's ridiculous. I forgot what exactly this is all about. There are 14,000 or so. I don't exactly remember the strange inflation-adjusted number right now, but. Can you hear it? 37%? Yes. Yes. So that's not a great result. You know, some promoter says it's a great idea. Let's place your bet. I have had two clients who were seven figure clients and offered this to their companions for their business so they would never have to pay taxes on that money.

And I say, not only would you pay taxes, but they will kill you in taxes. Yes. Keep going. I believe. That's really curious. Good. Because. Alright. Again, let's say they put the S corp shares into the trust. Well? There are only certain types of trusts that can own shares of a company. So either you are no longer a companion and now you are paying taxes at the corporate level, you are paying two levels of taxes, tax at the c corporation level plus tax on dividends. So that could be an option. The other option is for you to be a trust that can hold corporate shares.

But it turns out those are grantor trusts and therefore you are paying taxes no matter what. Like you have it coming and going and there's just no relief. And again, this revenue allocation doctrine goes into effect at any time. Also, I suppose we should probably keep in mind that you are trying to avoid paying the taxes you owe and are creating a trust as a mechanism to make it look like you don't owe the tax. Even leaving aside all this fun stuff we talked about, courts can freely ignore that the trust exists if it is a fraud.

Yes. So there are also the tools in the tool kit for the courts and, for example, the IRS arguing in court is huge. Now, there are people who can rightly point out that there is a provision in the code about reallocating certain things like dividends, extraordinary dividends and things like that to the corpus. Is there a scenario where the trust can actually say, Hey, yeah, that was shares, for example, rather than a dividend, but it's still taxed normally and they say, Hey, just allocate it back to the body? The trust. Is there a situation like that where you could escape immediate taxation and just add it to the trust corpus and not?

Yes, but that and the answer is: you're really talking about two different, completely different concepts. They are somewhat related in the trust and state income tax rules. But when you talk about corpus, you're really talking about what's called a trust accounting income issue and how money that comes into the trust is accounted for for trust purposes under state law. And so the general rule is that a dividend is, quote, income. The proceeds may or may not be paid to the beneficiaries, they may not be, but you can do so under most state laws and under the trust agreements themselves.

You can assign those things to the corpus, which means they may not be able to be paid out of the trust right away. Well, that doesn't change the tax status of the trust at all, that's all. Something like internal accounting for non-tax purposes. So it doesn't save you taxes. Yes. So sometimes people get confused because they hear the DNI or the distributable net income and they hear like, hey, the trust is sending it to the beneficiary. That doesn't mean no one pays taxes on it. It simply means that trust does not have to die at the highest level of your tax to the recipient.

Admittedly, that's not what kids are doing now. I did not do it. Another one and I'll throw this one away. I know I'm giving you strange scenarios, but there were very nice people there in California and they were doing very, very well. They make a lot of investments and they were proposed a three-trust mechanism, one of them was a charitable trust, a commercial trust and then just a long-haul trust that held the commercial trust and the beneficiary was this foundation. And they were lending the money again, doing all this crazy stuff. I just said it's a farce.

Look at it and go first. But the rules are not like that. But first blush, have you seen something like that out there that you've had to deal with and then you blush for the first time in something like that? Yeah, I can't say I've seen anything like that, although I would be very curious about how they used charitable trusts, which the transactions I've seen are almost always structured and This is where it really starts to fall apart, is that let's say you have these three mechanisms and all these loans, basically everything happens on the first day and you have to do it.

And the promoter wants you to sign everything on the first day. So you sign everything on the first day. Well, right off the bat, someone like you or I, and certainly a smart IRS attorney, will look at that and say we can ignore the fact that you have all these different parts for tax purposes. We'll just treat it as it really should be, so-called substance over form. We will simply treat it as it should be for tax purposes. And you know what? You want to set up all these buckets and do all these complicated things. Mazel Tov.

But that does not change the tax treatment. So you're stuck with the tax treatment and you've paid a lot of money for this complicated structure. So, unfortunately, you're stuck in both. Yeah, I actually emailed the promoter, wrote him a letter and just said, could you please? My opinion is that this is a complete farce. And it was also a private foundation, it was a charitable foundation, but it was taxes. A private foundation means money for it. Yes Yes. Yes. But they were, everything was written down. That's what these guys do. I say, just send it to the IRS, let them know there might be a recovery for you.

But yeah, I think it's interesting. I think you're probably seeing the same thing: First of all, most promoters are not what I would consider serious tax professionals. That is first. And the second thing is that they often like to rely on the fact that everything is correct. They are like wallets. And we have all these documents, we have everything papered. And therefore, this is valid. And I think people need to understand the hard truth, which is that, if you can, you can do all the dumb things you want, but that doesn't mean you'll get the tax outcome you want.

So there's a huge chasm between doing something you want to do and then using it to get a tax advantage and expecting the IRS to give you the tax advantage. They won't tell you. You have to undo the foolish transaction. They will just say you can't take advantage of the tax advantage. And let's say, hey, we don't care what you call it, we'll treat it this way. Never reallyIt's a pocket. It was interesting because I had another one here. I mean, I get hit with this all the time. So I'm just thinking about the ones I've had in the last year.

And there was another gentleman that I spoke to on the phone. He is always someone they say he is a lawyer, but he is not a lawyer. Yes, he is older. And the lawyer had a Supreme Court decision that they relied on when they said to do it. And I ask: What is the decision of the Supreme Court? And then I look at it and think: It has nothing to do with what you just said. Yeah. You know, it's either something like from the 19th century or something ridiculous where you say, you know, a long time ago, a hundred years ago, looking at it, this is not relevant or it's not what you quoted it to.

This has nothing to do with anything, right? Nice words, but it is. Well, and that's also a red flag for people, I guess, you know, for anyone listening, if you're getting promotions and again, what they're dangling is that it's black and white. You know, the code allows you to do this. It's black and white. Well, understand that, first of all, the last time there was a major change to the code was in 1986. And the IRS and Congress may have changed their minds on certain transactions. They may not have anticipated this transaction occurring. So chances are fine, let's assume probabilities here.

The chances of it appearing in black and white in the code are not good. And there are many gray areas in the code. So every time someone comes to me with that, it's black and white. Of course, I'm also a cantankerous lawyer. I just say, okay, come on, really? If it's too good to be true, just look at God, come on. Yes, but you are going to pay taxes for this. When I see this, it's always for someone rich, someone who pays a lot of taxes, and there are many ways to mitigate your tax payment. No tax is usually not one of them.

Maybe if he's a real estate professional, maybe if he is, he's operating in an exempt environment and he doesn't know it, he's making a reasonable salary or something like that. But for the most part it's that no, you're not going to avoid it. Alright. But there are scenarios in which trust is your friends. Now, maybe we can touch on some of the areas. And because you work with rich people, you get a clientele. It sounds very international, when is a trust used and for what purpose? Well, you mentioned trusts that were asset protection? Trust can be an excellent vehicle for asset protection.

In some states, you can get asset protection for yourself. Therefore, you can create a so-called self-liquidating asset protection trust. Yes they apply in all jurisdictions and maybe a little cloud about it. But even if you don't want to do it for yourself and you want to do it for your kids, you know, you've put together two nickels and you've made some money in your day and you want to keep some of that money from going to future ex-in-laws and things So. You can put them in trusts and get excellent asset protection for your family, so you can protect that family wealth in the wrapper of the trust.

And all you have to do is build the trust and you will reap the benefit. If you don't create stress, you don't get the benefit. If there are huge estate tax and skip generation transfer tax benefits to certain types of trusts, can we mention grantor trusts, particularly grantor trusts that are irrevocable trusts, which basically means that you will get protecting the assets, not you, the grantor who created the trust for your children. You will pay taxes on behalf of the trust, but everything in the trust will be free of estate taxes. So imagine what that looks like because, to me, if you're trying to boil it down to what normal humans understand.

It looks like a Roth IRA. It's like you pay the tax on the Roth IRA and then it grows tax-free, sort of. These irrevocable grantor trusts that you can establish for your children. You pay the tax on behalf of the trust and then the money and the trust grow tax-free, which is where you want all the growth because no one pays estate taxes on that money. You pay taxes tax free. It is growing tax free for the estate tax. But you are the great journey. It's a great haul, IRA. You're still paying taxes if there are capital gains or all that.

It is only for you, but it is not a burden for your children. So to address it we have this huge wealth tax. I think you've been doing this as long as I have. You know, I remember a $600,000 estate tax exemption when I started. I still remember those little exemptions. And now we are at 12 million plus the exemption. Yes. So if someone has surpassed what you're seeing, wow, or is there a threshold that you use? And it could be less because, for all we know, we could go back to a million. Forget about where you'll go when the tax cuts and the Jobs Act expire.

But it definitely won't be 12 million. It's going to fall very low and it won't. It will be half of that. So the base number right now is ten, 10 million, and then it adjusts for inflation. The base figure in 2026, on January 1, 2026, will be 5 million adjusted for inflation. So just round the numbers, let's say today is 12, then it will be six. So we're really in a really weird environment where you could have someone over 12, that's easy. They need to do something like plan for it because taxes are terrible. As you are pointing out, it is a tax of $0.40 in dollars.

So you have a $30 million estate and a million of them die during the 12 years that someone writes a $400,000 check to the IRS. That's painful. There's this weird middle ground right now between 12 and, say, six, where they don't have any problems today. But if they do the stupid thing and survive until 2026, then they do have a problem. So those people have to pretend they have a problem and start planning. The way I like to plan for people in that space is to try to do things that essentially limit their property values. So we are not going to exceed 12 million.

And there are many techniques that we can use to take some of the assets that they own that might have varying value and transfer them or even sell them into trusts and turn them into something that has a very specific value. Well. Let me give you an example so people understand what I'm talking about. So let's say I set up one of these beautiful, irrevocable grantor trusts and the grantors. So I paid all the trust taxes. And you are the beneficiary because you are my best friend in the world. And so I have a bunch of Apple stock.

I don't know what Apple's stock will be worth tomorrow, much less in 2026. So I'd rather take a note that's worth the same as Apple's stock today and hold on to it because I know that's not the case. It will change value. So what I do is sell my Apple stock to my new irrevocable grantor trust and the trust gives me a note for the current fair market value. And now, if the value of Apple stock appreciates above the face value of the note, plus whatever the interest rate is, all of that appreciation stays in the trust for your benefit.

It's out of my hands and no matter when I die, I won't pay estate taxes. You're not going to pay estate taxes on it. And so these kinds of small valuations, sort of capping trades, become really important, especially for people who are between these threshold numbers. If you get over the thresholds, then it becomes really important to not only do those things, but also give away as much as you can. Now, you just mentioned an installment sale, basically. Yes. Do they pay it or defer it? Is it something where you can say, hey, don't play with interest because we don't really want to sell Apple stock, right?

Well, we're selling it. But because I own the shares and the IRS claims I own everything in the Grantor Trust, it is not a true taxable sale. So there is no capital gain. So I'm not going to pay any capital gains. It's a real sale. There is substance to it. It has to be a real sale. There has to be a real note with real interest. That's really worth it to me. Ultimately, the goal is to pay off the note at some point, but we can pay it off over time. We don't have to pay it in the first year.

Do you put it as a marker? Like, Hey, if you ever sell the stock, you'll have to pay back the note. And meanwhile, the interest is accumulating. This is where you have to pay the tax. What is the mechanism or do you have to start making payments that first year? We typically require at least interest payments during the first year. And very often the note is set up as an interest-only note that has a balloon payment at the end. Let's say it's 10 to 15 years. We could say that we could get to a little less than ten years on the term of the note because it gives us a slightly better interest rate.

But the idea is that once we put the shares in the trust, the trust is for the use of the shares if the trust sells the shares. And then they actually generated a capital gain because they sold the stock. We also usually have a provision in the trust that, if I wish, I can apply and obtain permission if an independent person agrees, to be reimbursed for the cost of capital gains tax. So I won't have to bear the capital gains tax I didn't want to pay. There is still a guarantor trust. Then I am responsible for the income.

If Apple pays dividends, for example, they pay a small dividend, but would that also be taxable? For me, as they say, he is the father of a child instead of just being nice to me and giving me a lot of shares. Although I wouldn't stop you. You wouldn't stop me. Okay, pretty good. But. But you're still paying the tax on that, right? You are not. You are not right. And if I need to pay interest, is that something where I can continue to make additional contributions to the trust in case cash needs to be paid as interest?

Or how does that work? Do I have to sell to start paying that interest? I hope not. Actually, the idea is that what you would do is first when I create the trust, I would seed it with other investments. Maybe it's cash, but maybe it's other investments. I like to see that it's something that has a return, so collectively the return we can get on those assets plus what I'm going to sell to the trust is much greater than the interest that's going to be paid. It should be noted that I don't want to overload trust too much.

I don't want the trust to be uneconomical. And of course what I'm trying to do is put more money into the trust. I don't want my money back. I want as much confidence as possible. So if a really good example would be if I have, let's say, a piece of real estate that's rented and has a pretty good income stream, I could donate it to the trust first because the income from the real estate is going to support the note in the future. But either you give it away or you sell it or I know and understand what you just said.

So you are donating all the real estate there so that the income stream covers the interest on the note? Yes. Or it could be a combination, so maybe I give away some of it and then sell the balance and the rest so that the assets together between what I sell to the trust and what I donate at the end of the trust are capable. generate a lot of income to support the non-payment because, again, I don't want it, I don't want the trusts to be uneconomical and I want the note to actually be paid off at some point.

Real estate is great because it often has a relatively steady income stream. It can be used for future financing. So the financial terms are appropriate. You may be able to extract some equity from the real estate, pay off the note, and now you're just paying the bank back, but in my opinion, you'll be paying the bank probably over a longer period of time. promissory note, those types of transactions that are possible. The future was something like real estate. That's really smart. And then it seems like if someone breaks the $5 million mark, they may need to consider this.

And would it be business interest, real estate shares? Maybe they're getting a piece that could be highly appreciated or, you know, it's still going up in value and they just want to freeze it so they don't have estate tax issues. Is that primarily what we're doing here? That's what we're doing. And it would be all of the above. Yes Yes. Obviously it depends on what someone has. The first question I almost always ask a client is something like: How much can you afford to give away? Like, what do you need to live? Because we are also not asking clients to do something that impoverishes them in a way that substantially affects their quality of life.

I'm not talking about super luxurious lifestyles, but I want them to be able to live comfortably the way they like to live. And that's why we are trying to come up with strategies that can generate income streamscoming from these trusts that will actually support the lifestyle they want. I want them to also keep enough funds out of the trust for everything to go wrong and the trust transaction. Of course, they have enough money to take care of themselves. But I don't want to do something that's unreasonable because it just doesn't work for your lifestyle. That's why we always try to match payment terms and assets with the reality of the client's lifestyle.

Now shifting gears slightly are, as you mentioned, international customers. Then you have rich international clients. Are we just talking about US citizens or are there people who are not citizens of both? Yes and yes. So if you're a U.S. citizen, you get the benefit of the U.S. estate tax, these huge amounts, the 12 million now and in 2026, which comes down to the inflation-indexed 5 million, which would be about 6 million. But what about international people? Because they don't get the benefit of that, right? They do not. So, if you are not a citizen and you are not a resident and resident means that you do not live here with the intention of staying here, you are not a supposed domiciliary of the US.

Then your estate tax exemption is $60,000, six zero thousand dollars, and that number has been around since the 1930s. And they are not going to change it. So and it is not indexed to inflation. Then one comes to the rescue. These people don't vote. Okay, so no one is helping them. So I'm someone, let's say I'm in Spain and I own $1,000,000 in real estate in the United States. Am I going to pay 40% of that million dollars minus the 60,000 exemption? Unfortunately yes. What if I'm married to a US citizen, Joyce? Do I get any pardon or are they still going to beat me?

So in that case, if you leave the property to your U.S. citizen spouse, you will get the benefit of what is called the spousal deduction against the estate tax. And that's a dollar-for-dollar deduction for all the value that goes to your U.S. citizen spouse. Therefore, in that case, you would not pay any estate tax upon her death. And in essence, the policy is excellent. The property is now in the hands of an American. We can tax Americans. Therefore, we will expect to tax the spouse later. Of course, now the exemptions are so high for Americans that it's not as helpful, but that's still the policy.

Do you see this scenario playing out on its own? Is this something where people come in and say, I have five or six million dollars in real estate in the U.S. I'm not a U.S. citizen? I have no intention of residing here. You know, I'm not married to an American citizen. I just own a lot of real estate here. And that's something you see? Yes. And when they have done everything and purchased the entire property before talking to me, it is a real challenge because it is difficult to walk away from that transaction without paying taxes at some level.

Normally what you have to do is swallow a somewhat bitter pill and pay the capital gains tax to avoid paying the wealth tax later. And the reason for this is what is the typical way to plan the transaction? Well, there are actually two ways. The first way is for a non-citizen, non-resident of the US, it's important that that's what it is. Does not apply to US citizens. If you create a foreign company that is considered a corporation here and if you own stock in a foreign company and the foreign company owns real estate in the U.S., when you die, we will represent you only over the shares and the foreign company and not the USA real estate.

So there is no estate tax? Yes. But to return to that structure, when you already own property in the United States, you have to pay capital gains taxes. You're going to have to sell it to the corporation. In essence. Yes. It does not mean it is a cash exchange. It's just that we pretend it's a sale. When you contributed to the foreign corporation. And then how would this change if you have a US citizen spouse? Yes, it's a little easier when you have a U.S. citizen spouse because of the marital deduction, but you end up in a logical puzzle because you're guessing who's going to die first.

Yes. If it's the foreigner, you're fine. If it is an American person, then you have a problem. The other way we generally handle this problem, if we don't want to pay capital gains tax, is to simply have the foreign spouse purchase life insurance if he or she is insurable or because the proceeds from life insurance on the life of a Non-citizen, non-resident of the US, it's very important that that's who you are because it doesn't apply to Americans. But that type of person's life insurance proceeds are not subject to estate tax. So we buy life insurance to cover the estate tax in the event that a foreign person dies second and not first.

Very very interesting, what if it changes? If they're a resident, they have a green card, maybe they have a ten-year green card or something like that. Does everything change in those circumstances? It turns everything completely on its head. And then, of course, of course, it's like, yeah, you have a green card, cool. You can't vote. But we are going to tax you like an American citizen. But that means you will also benefit from this 12 million exemption. You too. Get it. Well. Then it's okay. So if you have that green card, that's your reprieve. If you become a non-resident.

So their green cards last three years and expire now that they have returned. And oh, hell. You could be. You could be. And well, in the meantime, the fun thing is that we pretend you're a citizen, so we tax you on all your worldwide income. And then we understand it from some angle. And then there are some very specific rules about long-term green card holders. So if you have had a green card for more than eight of the last 15 years and then give it up under some circumstances, we charge you an exit tax, we pretend you sold all your assets and then you have to pay capital gains tax. in the US upon departure.

I think some Canadian friends I know here were dealing with that and they were. But I'm going back. And then they said, I'm not coming back. Yes Yes. Because the tax is so atrocious. Yes, it goes both ways. Canada has its own departure tax. In fact, they call it an exit tax. We call ours expatriation tax. But functionally they are the same: when you are a Canadian resident and you come here and become a US resident, you have to pay an exit tax in Canada. Yes, I'm sorry. I was going to say and it might be a little painful.

So Canadians who accidentally incur the Canadian departure tax are not happy. However, because the CIA is not a nice organization. Now the other fun thing is when they throw things in the trash, don't they treat that for the Canadians? They treat it as if they sold the asset, right? They do, yes. If you are a Canadian resident and you create a trust in the US, because that is what a very smart and well-intentioned US advisor told you to do. It is considered a sale of the asset to the trust in Canada. So you pay taxes in Canada.

America doesn't care, but Canada really cares. Canada is to blame. Exactly. So I guess the moral of this story and I could talk to you all day about this topic because I find it fascinating is that it's complicated. It's very complicated. Yes, unfortunately it is. So if you have a green card, if you have substantial assets, and you are not a US resident or US citizen, you should talk to someone who knows what they are doing. And if you are American, reside here, and have assets of over $5 million, you need to talk to someone who knows what they are doing on this particular issue, because it sounds like it could have an unpleasant ramification.

Yes. I want to ask you one last question. This is a softball, because I know you and I think the same way. But there are also these revocable trusts floating around out there, especially the living trust that we sometimes hear about. And I just want to get your take on people who make wills versus living trusts versus doing nothing at all. I am not a fan of doing nothing at all. So, to be perfectly clear, my number one preference is to do a living trust or a revocable trust at a minimum. And that goes for almost every single one of my clients, regardless of how much money they have in the bank or in the company.

Well. That's what I would like my lawyer to say. That what really keeps me up at night are the nightmarish guardianship and conservatorship files that I have that exist because someone didn't do a small amount of planning and didn't do what could have been extremely simple, quote-unquote, simple, revocable. . trust that would have resolved this, a question of what happens when they become incapacitated, who is going to manage things, or what happens if you die and leave money to a minor who will manage things for the minor. If run through a revocable trust, it simply solves all of those problems.

And there are so many headaches that can be solved by simply doing this simple thing that I hardly see circumstances where it doesn't make sense. Honestly, the biggest caveat is usually with foreigners where their home jurisdiction has a rule, like Canada, that saying making a trust is considered a sale. Leaving that aside, it is almost always the correct answer. And does Canada always apply taxes? So if you create a living trust in the United States and you are a US citizen and all your assets are here in the US, would Canada still have it? If you are a US citizen and not a resident of Canada, then that is fine.

But if you are a resident of Canada and you are creating a trust here, in most cases they will treat it as a sale of assets to the trust. There are some very small exceptions for seniors who have a basically revocable trust. They call them trusts in Canada. And those trusts escape these rules. But the general rule is. You have to be over a certain age, right? I think it's over a certain age. He is 65 years old or older, if I remember correctly. Good? Yes i think. That is. I remember seeing that it is in the deepest recesses of this brain.

But I want to address the living trust just one more time, because a lot of times people come to someone and say, just make a will. And I always say: That's comparing a Happy Meal to buying just the burger. I could buy the hamburger. The Happy Meal comes with other things. Yes. And sometimes the rest is what is really important. And then there is only talk of filing guardianship and conservatorship files. That's almost then what is always included in a living trust. I have never seen a living trust that does not have legal powers for financial and health matters.

And I have never seen those subject only to a will. Sometimes someone will do both, but usually if you're struggling, you're either doing the estate plan or you're not. And that's the part that really bothers me because I see it over and over again, because again it's like, should I eat or should I have a soda? And they said, Oh, soda is perfectly filling, but they are two very different things. So when someone says Schedule a will or a living trust, you always look at it, they are different animals. And they, as you mentioned, some of your files.

How arduous is the process of becoming someone's conservator or taking charge of their finances when there is no written document? Is it pretty egregious? Well, in my good state, which is similar to most states, someone who cares enough about you has to file a petition with the court. The court appoints someone to act as an investigator, talk to all interested parties, and submit a report to the court. The court assigns a lawyer who is now incapacitated, so at least two lawyers are almost always involved. The court appoints a medical professional to conduct a medical examination. All of this is presented to the court.

You have a public hearing about your inability to manage your finances, which may not be very pleasant. Then someone is appointed. Then each year they have to account to the court, down to the last penny, for everything that has come in and out of their hands in your name, and they do this for your entire life or until you are cured, which is usually not the case. the case. . So if you have. Someone with dementia, if you have someone who was in a car accident and for some reason can't make decisions on their behalf, maybe they're brain dead.

Good. If you're going to do it, you'll have to go through this process even under those circumstances. Yes, dementia, definitely. Car accidents, definitely dementia. One that is easier to plan for and plan for if someone gets into an accident and says you end up with a personal injury settlement; that can be difficult to plan or plan and plan. And they may force you to accept one of these guardianships, but they are very expensive and time-consuming. And when people hear that it's time-consuming, they should think about how expensive it is.Yes, that time is being charged by the hour.

But a will is easy and is validated in my state. I mean, I wish I had an estate from Nicole, not bad in my state. Oh, you don't need that. You just like to lose your mind. Alright? I think we think alike about that. Yes, we definitely do. Whereas the other thing is they say, well, I have a power that takes care of it and we're totally fine. The thing is that banks don't always agree. And if the bank doesn't agree, your power of attorney will be worthless. And that has happened very frequently. And sometimes people don't believe me.

But that is the case. It may have happened many times, just say that over the last ten years I can say that with complete confidence. Banks Hello, powers, yes. Make the trust. Make the trust. And me and I have dealt with the same thing that you have dealt with and it's like. Yes. But they are covering their asses. Obviously they have been disastrous in some circumstances. And you know, ultimately, I don't think anyone is acting with bad intentions. They are simply trying to do what is best for them and it is not easy, so make sure you have your foundation.

I'm going to make it. Anything else you want to flirt with? I really enjoyed our conversation, so I'm curious to know anything else you'd like to add. I guess the only thing we didn't mention is that this is in line with the conversation we had at the beginning about all these fund-sponsored trusts. If it is a trust that is located in a foreign jurisdiction, know that it is in Tennessee. You go 50 stories high because it probably won't work. 2 to 2. Oh my God. We didn't even talk, I don't know about you, but several clients came to me and said, I'm going to do this trust.

It is and this trust has been in business since the 19th century or something strange. And then they come back a couple of years later and say: My manager is not responding, how do I get my money back? On more than three occasions I can think of just a few of them off the top of my head. Have you dealt with that too? And I mean, you say your tenant goes up. Is that one of the reasons or are there other reasons too? Well, one reason is simply because the way they are promoted is not the way they actually work.

You know, that's how it is. It's supposed to be some kind of tax measure. It's not just a surprise that you don't have to wait for the details. The surprising ending is that this is not a tax measure. You don't save taxes. Normally you complicate your taxes is what happens. And then, yes, nightmare scenarios happen. I mean, one of the most egregious cases I had was a client who had a trust actually created by her husband. And there were two people who were the trustees, and they basically completely mismanaged the funds and stole money. And it took years to take them down.

It took years to get rid of them. And we literally still have one or two Irish mutual funds in our investment accounts that were frozen during the Great Recession, not great investments to begin with, but they were frozen during the Great Recession. We can't get the money back that was, yeah, whatever, 2910 and we still haven't figured it out. And I repeat, there are already enough nightmare stories where the administrator responds. Where is that confidence? The Isle of Man or Cook or one of, you know, some island somewhere? I say, well, you'll have to go there. Yes.

It will be expensive litigation. If they are still there, chances are they will just disappear with your money. I'm not a big fan of traveling abroad unless you have a really good reason, but that's interesting. Again, you and I put more thought into a lot of these than I realized, just from what I see because, boy, we see a lot where someone comes in and some promoter, go to this island, go to that island , go here. , go to there. And I said: Do you have business there? Do you have people there? Do you have an infrastructure there?

But it would be very, very bad if you had to enforce there. It can be difficult. You have no infrastructure. Is there any situation where you go abroad? They are usually non-American. So, for foreign clients who, for example, are investing in the United States, we could create a trust for them. This is a non-US trust, although we create many US trusts for such people. But sometimes it is better to establish the trust in a foreign jurisdiction because your local jurisdiction in that jurisdiction is friendlier to each other than that jurisdiction in the US. And then we will use the foreign country to establish the trust. trust.

That's really all. I mean, frankly, the tax laws and trust laws in the United States are so good and so strong and the investment environment is so good that very often trusts are here, even for foreign clients. You are my experience. It is difficult for us to be. Yes. We tax worldwide income. So yes. You're not going to move it out of the US and somehow you'll still have access to it and get it, you know? But why would you buy the asset and let it appreciate? You could borrow against the asset. It's going to intensify when you die.

And there are a lot of other benefits floating around here in the US tax code. It's like, why? Why waste time abroad unless you're Amazon? Good? Yes. Well, I know that sometimes happens to me about people. Well, what about Amazon, Apple and all these companies? And I say you are not a company. Yes. So you are playing by a completely different set of rules. What are you thinking? And they have received fines of 1,000,000,000 dollars so that Apple is being crushed. Yes. It's the intellectual property and what they are doing. I think I forget what Matter Island Liechtenstein was like.

There are places where you can. Go. But. You just don't do it. Just don't do it. You are an individual. No. It's not worth it. Yes. You don't need your team of lawyers to go abroad and try to argue why you should pay the tax they are trying to impose on you and that you decided to avoid. Yes. Sometimes it's easier to keep it simple. Did? Ran. How can someone contact you if he wants to contact you? If you Google Attorney Brent Nelson, you'll probably find me, but I'll figure it out. I'm a partner in a firm, I should say, called Rimon.

R I M O N I live in Tucson, but the firm is an international firm of approximately 180 lawyers. And then I'm on social media @wealthandlaw, all explained. And I have a podcast, The Wealth and Law, and it's available on all the normal podcast aggregators, Apple, Spotify, etc. So anyone who looks for me will be able to find me. Google knows I exist. I'll include you in the show notes to make sure we include a link so how easy it is to find the world needs good people like you. Again we have a crossing. I have no problem saying get in touch.

If you are someone who has surpassed that $5 million mark and then you want someone to know what they are doing. This is what guys like Brent do all day and you want someone who knows what he's doing 100%. But I really appreciate you coming and sharing with us. I was going to call this trust

scams

and things to avoid and we all see them. And every time someone comes running and says, I don't have to pay taxes, this guy says that. I always say: Oh, no. It is not a gap. No again. Exactly. Well, I also allow myself to make the compliment the other way around.

So if anything, I said, make someone think they need services. Excellent. So it's OK. The world is abundant. This do not affect me. Yes, I never, ever worry, but I appreciate you sharing. In addition.