Asset Protection-Joint Tenancy and Intentionally Defective Irrevocable Grantor Type Trust

Ask any lawyer, accountant, life insurance agent, financial planner, mortgage brokers, stock brokers, or any lay person for his definition of asset protection and he will likely tell you that it’s the positioning of your assets against potential creditors who can sue you for typical negligence.

My definition is beyond the mere positioning of assets; it’s the preservation of your current and future lifestyle against potential frivolous lawsuits, the probate process, the estate tax, and the nursing home spend-down.

Asset protection is protecting you against anything that can take money out of your pocket, including:

– A potential creditor and his very cleaver lawyer for age discrimination, racial, gender, religious, sexual harassment, gossip, malpractice, product liability, environmental, personal perceived or real injury, divorce, and a host of other real or manufactured reasons.

– The U. S., State, and Local government through the imposition of income taxes, gift taxes, inheritance taxes, state and excise taxes, property taxes, business taxes, gasoline tax, cigarette tax, telephone access fees, business licenses, dog licenses, trash collection fees, and a host of other fees.

Many attorneys unwittingly recommend common ways that do not protect assets. The Revocable Trust, otherwise known as the Revocable Living Trust is not worth the paper it’s written on. The revocable trust is simply that “revocable” anything created by the owner with power to undo has the power to do, i.e. lose it in a lawsuit. Even simple things as holding title to real estate.

WHAT IS JOINT TENANCY?

Most attorneys do not understand the legal consequences of owning property as “Joint Tenancy”, also known as Joint Tenancy with the right of survivorship, is simply bad advice. Owning property as “Joint Tenants” gives each member (husband and wife, possibly with other co-owners) the right to use the “whole” property with rights to occupy the entire property, with stocks, or bank accounts, and the right to SPEND THE WHOLE AMOUNT.

Joint Tenancy gives the right to “each person” to transfer the interest in the property WITHOUT ASKING PERMISSION from the other co-owners. The survival rights, such as in when a Joint Tenant dies, means the share of the deceased Tenant automatically becomes that of the other co-owners.

Joint Tenancy is the most common form of co-ownership for many assets such as:

– Bank accounts – Brokerage accounts – Real estate

WHY IS JOINT TENANCY USED?

So why use Joint Tenancy? The answer is simple. It’s easy to set up a self-induced high ownership in their name leading to misguided misinformation and not requiring the services of an attorney. Consequently, when a joint co-owner dies, the entire asset becomes that of the other co-owners. The problem is that Joint Tenancy is subject to the full loss in a lawsuit. So, if one of the co-owners gets sued and loses, the entire asset is at risk and may cause the forced sale of the asset to satisfy the claim. You should not hold title to any asset as a Joint Tenant with right of survivorship. Never rely on co-ownership as a way to protect your assets. It doesn’t work.

WHAT IS AN “INTENTIONALLY DEFECTIVE IRREVOCABLE GRANTOR TYPE TRUST”?

The preferred method of holding all valuable assets is through an Irrevocable Trust or an Intentionally Defective Irrevocable Grantor Type Trust.

The “intentional” defect in the Trust Agreement arises because the trust instrument is “intentionally designed” for the “Grantor” to be the deemed “Owner” for income tax purposes under Internal Revenue Code sections (IRC) §671-§678 but completed for gift and estate tax purposes under IRC §2036-§2038 and out of the estate for Estate Taxes.

A Trust is nothing more than a private Contract between the Owner, the Trustee, for the benefit of Beneficiaries which can include the original owner, his spouse, his children, and anyone else the owner desires to include in his beneficiary stream.

WHAT IS A “GRANTOR-TYPE TRUST”?

The “Grantor-Type Trust” is a tax loophole. The IRS considers these type of arrangements as disregarded entities, meaning that the IRS will impose a tax on the nearest person it can get it’s hands on. The income and expenses pass through to the Grantor on his form 1040. It’s tax neutral. For tax purposes the IRS does not care who pays the taxes, as long as someone pays the taxes. For the IRS’s convenience, the IRS deems that the Grantor is the Taxpayer and looks to the Grantor to pay the taxes.

WHAT DO YOU MEAN BY “INTENTIONALLY DEFECTIVE TRUST”?

The Intentional Defective Trust is “irrevocable” for asset protection purposes. The Grantor repositions his assets by transferring his assets to the Trust by gift or by some other device of equal value in order to avoid fraudulent conveyance. Assets repositioned to the Defective Trust, when designed with an Independent Trustee, delineates absolute ownership from the Grantor to the Independent Trustee. Because of the independence of the Trustee, the owner will avoid frivolous lawsuits, eliminate the probate process, and eliminate the estate taxes.

author bio – Rocco Beatrice, CPA, MST, MBA award-winning estate planning & trust expert MS – Taxation, Master of Science Taxation MBA – Management / Taxation BSBA – Management / Accounting CPA – Certified Public Accountant —– UltraTrust: Irrevocable Trust Asset Protection Anna Nicole Smith Dies Without Will 71 Commercial Street #150, Boston, MA 02109 tel: +1.508.429.0011 fax: +1.508.429.3034

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