DISCLAIMER: Before I dive into any information concerning opening a trust or trust administration remember that I am just telling you what I plan to do and not giving any legal or advice whatsoever. I am not an attorney, a trust or tax attorney. I am not a certified financial advisor, estate planner nor any of these like professional disciplines. For my personal use, I have done extensive research on trusts but even with this I will still consult a trust attorney to set up the trust and to help me qualify for it and manage it. Having some knowledge of trusts only helps me talk intelligently to the legal professionals and understand somewhat of what they tell me.
We are quickly nearing the end to our RV journey and so my time with all of you is very short. Thus, I wanted to create this page in my blog to give you an introduction to trusts and the two of the major types of trusts that I will be using as they may also help you. It is time as I promised I would cover this when the time arrived. This information is just an introduction and overview as trust law can get very complicated real fast. But don’t worry it is not all that hard if you understand a few basic principles, as I have learned over the years and want to share with you now.
First and foremost, please, please, please do not feel like you have to create a trust or create a trust prior to your exchange. You must consider all your risks including the types and values of your assets. You must sit down and ask yourself “what if”? Yes, what if I am sued. Can some hot shot attorney convince the court to take everything I own? This happens to a lot more people than you think. Also, once you have a significant amount of money KEEP YOUR MOUTH SHUT. This simple statement alone is the best advice I can give you. Do not brag or show off. This puts you in the spotlight and potential con men will come after your newly found wealth. Believe me it will happen.
There are two kinds of trusts that I will be using. They include the Simple Trust and the Complex Segregated Assets Trust. I will be using both of them based on the type of asset I wish to put in the trust and how I want to manage it.
Setting up a trust ahead of time only means that when you do exchange, you can exchange under the trust, thus the money never passes through your name right from the beginning of the process. If you are sued it is much more difficult to find your assets and also, if the trust is found, your liability is segregated to that asset only. Having a trust does not necessarily curtail a lawsuit and thus taking the asset or from tax liabilities either. Remember these key principles as many people in this investment of the Iraqi dinar have been misled in the use of trusts. Use the trusts for what they are intended for and understand why the law allows for the use of these entities.
Trusts can segregate your assets, thus the liability is limited to the lone asset to which the damage occurred. The court cannot go after you for damages as the item is owned by the trust. The courts cannot go after everything you own. Why? Because you own nothing. i.e. Your auto is in a simple trust. You have an accident while driving the auto. You are at fault. The courts can only go after the trust that contain the auto. Your personal liability is limited to your insurance on the car which is under the trusts name. There is nothing else they can take. They cannot then go after your house, jewelry, paintings, furniture, other cars or properties. You know why? Because they are also owned by another trust (or segregated), etc. , etc. Get it? YOU OWN NOTHING but MANAGE EVERYTHING!
What if your trust is for your SAVINGS Account or INVESTMENT ACCOUNT? How do I get money out of it for myself or others? When thinking about distributions from the trusts, remember that there are normally two key parts:
- The lump sum or initial principal money (or pther asset) originally granted or put into the trust, such as your currency exchange money or (properties, cars, land, etc.).
- The sum of money generated later from the trust such as income generated from it over time using the original principal asset, such as from investments in the trust. i..e. the trust buys some stocks or an annuity. Yes, you are allowed to have investments in certain types of trusts. These investments can generate income for the trust. Sometimes substantial amounts of income. How you will pay taxes on these incomes depends on the type of trust and how the money is distributed. These are two important factors.
Simple Trusts vs Complex Trusts:
Simple Trusts
A simple trust must distribute all its income to beneficiaries annually. This allows the beneficiaries to pay income tax on the distributions at their individual tax rates. As such, simple trusts do not pay income taxes directly. However, they may be subject to other taxes like capital gains tax, which normally can be lower.
To qualify as a simple trust, the trust’s governing document must require that all income is distributed currently. The only deduction allowed is for administrative costs of managing the trust. You must keep diligent records of these expenses. I plan to buy manila folders and put all receipts in the folder for the end of year or quarterly taxes. Then once the taxes are completed, I can file it away.
Complex Trusts
Unlike simple trusts, complex trusts can accumulate income instead of distributing it. As a result, complex trusts pay income tax on any undistributed income directly using trust tax rates.
Complex trusts allow more flexibility in managing assets. However, the tradeoff is higher taxes since trust tax rates are compressed.
I would recommend The Protection Group LLC for all your trust needs. They are very reasonable in fees to help you set up your trusts. They also have trust attorneys standing by to help you free of charge for all your trust questions and needs once you purchase a trust from them. They also currently have a call twice a week to help you figure it all out and answer questions. What can’t be answered on the call can easily be taken care of in a personal one on one call later.
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Which one is right for you?
SIMPLE TRUSTS
Some terms you might hear when studying SIMPLE trusts:
Legal Terms Similar to Trust
1.Discretionary Trust – A type of trust where the trustee has discretion over how and when to distribute the trust’s income and/or assets to beneficiaries.
2.Bare Trust – A simple type of trust where the trustee holds assets on behalf of the beneficiaries but has no power to intervene in the trust’s management or distribution of income.
3.Constructive Trust – A trust that is not created by an express agreement or written document, but rather is imposed by a court order to remedy an injustice or prevent unjust enrichment.
Simple Trust: A Simple Trust is a straightforward type of trust that distributes all of its income to beneficiaries, without accumulating any surplus or making capital gains. The trust can be set up for a fixed term or can continue indefinitely. It is also known as a non-discretionary trust because the trustee has no discretion over the distribution of the trust’s income.
A simple trust requires the trustee to distribute all income annually to the beneficiaries. The beneficiaries are then responsible for paying taxes on that income personally. The trust itself does not pay income tax and instead passes that tax burden directly to the recipients.
Common Use of a Simple Trust: Use if you want to put a lump sum of money or assets (i.e. property, cars, land etc.) into a trust to protect it, then distribute the money over time to beneficiaries or transfer the asset, such as to family member(s) or friend(s). After the trust is exhausted, the trust typically then is dissolved. In this trust you can stipulate conditions to which the beneficiaries can receive the money or asset. This is the nice part about it. Remember that you might be dead by the time the trust is fully executed to the beneficiary. This way you ensure your wishes are still carried out.
Examples:
1.Father sets up a simple trust for his son Bobby with $200,000. Bobby will receive $50,000 for the next four years on the condition he go to a college of his choice. The distribution is to be used for college tuition starting at the age of 18 but not to exceed 21. Other annual proceeds from the trust will be paid out to Bobby for miscellaneous living expenses at this time whether he goes to college or not. This way the child has four years to decide if he/she wants to go to college but must make up their mind by the age of 21 to begin the college distribution. Whenever he decides to go to college the money can be paid out to him. This puts pressure on the child to decide and not procrastinate but only has four years to do so. If the child decides not to go to college he will still receive the annual proceeds generated from the trust. Any remaining money in the trust will be distributed to his son at the age of 60 and the trust dissolved.
2.Susie’s father set up a Simple Trust for his daughter Susie for $100,000 who will receive all the proceeds generated from the trust for as long as she remains drug free for the next 20 years. After that time any remaining proceeds will be distributed to Susie and the trust dissolved.
3.Jane’s father sets up a Simple Trust for his daughter Jane, with the requirement that all income generated by the trust should be paid out to Jane every year for the next 10 years. After the 10 years are up, the trust will be dissolved and any remaining assets will be distributed to Jane.
4.Brian inherited his family’s farming business through a Simple Trust set up by his grandfather decades ago. Under the terms of the trust, all income generated by the farm is distributed to Brian annually.
5.A couple who owned several rental properties set up a Simple Trust for their children, which distributed all rental income to the children in equal shares every year.
Other types of trust to consider:
Complex Segregated Trust:
A Complex trust accumulates income, allowing the trustee to make discretionary distributions. Unlike simple trusts, complex trusts are treated as a separate taxable entity. The trust pays taxes on undistributed income directly from the trust assets. When distributions are made, the beneficiaries may also incur additional taxes.
Trusts allow you to manage your assets with one or more trustees overseeing distributions rather than having assets transferred immediately upon death. Different trust structures provide varying levels of control depending on whether they are revocable or irrevocable. Working with an estate planning attorney can help ensure your trust aligns with your financial goals and tax minimization objectives.
Grantor Trust
You might here the term grantor trust. Is it right for you? Grantor trusts do not need to file separate income tax returns, as opposed to simple or complex trusts. Because assets in the trust are still considered the grantor’s property, the grantor reports the income from the trust assets using his own social security number. For single individuals, the tax is 37% for taxable income of $523,601 or more, as opposed to a trust that has a tax rate of 37% for taxable income in excess of $13,050.
The main drawback of grantor trusts is that the assets in grantor trusts do not avoid probate nor do they enjoy creditor protection. However, an intentionally defective grantor trust, such as a SLAT, if crafted and written well, may enjoy creditor protection and allows the grantor to still pay for the income tax, enjoying the lower rate, and avoid probate at the same time.
I personally am staying away from Grantor Trusts.
What is a Revocable Living Trust?
A Revocable Living Trust (some states call this a Living Will) is a document that allows you to place assets or property into a trust so they can seamlessly transfer to your beneficiaries after you pass away. It is NOT for asset protection while you are alive. These trusts are legal entities that hold assets for beneficiaries to inherit eventually. The assets are actually already owned by the beneficiaries but not yet under their control until the maker of the trust dies. My parents had a Living Will and so when they died their assets automatically were given unde rmy control to spend them or use them anyway I wished. I sold their house and furniture, then went to the bank to transfer any money into my account. I did not have to wait for probate to settle the estate and deal with all the waiting and paperwork. However, it is a good idea to file the Living Will in probate anyhow and at the time of death given them an official certified copy of the dead certificate. Do it promptly. This will save time and aggravation later.
The Living Trusts allows for a smooth transition of assets to the beneficiary upon your death. There is no probate necessary and in most cases no taxes incurred as the beneficiary already legally owned the asset prior to death of the giver. Estate taxes can be very high if the estate is over a certain limit. It varies by state but in some states it could be as high as 50%. There are time limits as to how long prior to death the document (Living Will) must be established. So,you cannot do it on your death bed, I am certain of this. In other words, you can’t do it on your death bed you must think ahead. As its name suggests, you can amend or revoke the terms of a Revocable Living Trust at any time, obviously while still alive.
I find that this is an excellent way to transition your estate to your heirs upon your death. My hubby and I have already drawn up our “Living Will” just in case…… By the way if he dies first, by inheritance laws, I automatically get everything since he is my husband. But if the Living Will is made properly his assets too will not have to go through probate. The Living Will stipulates I will maintain control until we are both passed, then control is passed on to our two daughters.
TAXES
What is the best type of trust for tax purposes?
Irrevocable trusts are often considered the best type of trust for tax purposes. Here’s a quick overview why:
😊With an irrevocable trust, you transfer assets into the trust and no longer control them. This removes the assets from your taxable estate.
😊The trust pays taxes on any income it earns at trust tax rates, which are often lower than individual rates. This can save money compared to assets you own directly.
😊 There is no gift tax when funding the trust, as long as you stay within your lifetime exemption amount ($12.06 million in 2022). Many in this investment with the dinar may exceed this exemption amount. So please go see a good tax attorney.
😊Creditors generally cannot reach assets held in an irrevocable trust. This provides asset protection.
So in summary, irrevocable trusts remove assets from your estate, provide potential tax savings, offer creditor protection, and allow you to control final beneficiaries. This makes them a prime estate planning tool.
Be sure to consult an estate planning attorney to determine if an irrevocable trust aligns with your financial and legacy goals. The trust must be properly structured and funded to work as intended.
I sincerely wish that this workshop was helpful in giving you a base foundation on trusts and the use of them.
WILL YOU BE TAXED ON YOUR EXCHANGE OF CURRENCY?
This is another one of those questions that keeps popping up in the dinar investment community. I will tell you I have researched this also and there are two sources I can reference to help get some information on this area of concern. You are welcome to go read the information for yourself and then determine for yourself. If I were you, I would definitely take this information to a tax attorney for guidance and maybe call the IRS yourself to get a definite answer. For now, it is still skeptical what the taxes will be and how they will be handled on the Iraqi dinar exchange. We have not gotten any definite ruling by the IRS nor will we probably get one. If in doubt, be ready to file and pay taxes. There is rumors that the bank will make you sign a tax form allowing the IRS to take out capital gains. This is just a rumor for now.
IRS Foreign currency and currency exchange rates | Internal Revenue Service (irs.gov)
If the value of foreign currency changes from when you acquire it to when you dispose of it (e.g., converting it back to U.S. dollars), you may have a gain or loss. Generally, gains on appreciated currency are taxable at ordinary income rates, not as capital gains.
THE “VACATION” EXCEPTION
This exception is a good starting point, since it applies to many people. If you hold a foreign currency for personal purposes, such as returned from a vacation trip or business trip and have left over foreign currency you did not use while abroad, and you incur a loss of any amount, or your gain is less than $200, there is no tax due on the gain or a deduction for the loss. But his $200 exemption is way too small for us dinar holders. What will we do?
How does this vacation exception apply to the Iraq dinar exchange?
Some believe that even though we will surely be realizing must much more of a gain than $200, this exemption should still apply since we have the currency in our hands and it is not a selloff in any currency exchange market, perse. But will this thinking hold up in any IRS ruling? Be careful and put aside any potential tax liability before you go off half-cocked and spend most of your money. If you do and the taxes are due, this will be your worst nightmare. You may sit in jail the rest of your life. Once the air is cleared and you know what taxes are due, if any, then make sure you have it in writing before you spend, spend, spend…
Some issues to think about and bring to your tax attorney:
- Your gain will be much more than the $200 exception in most cases;
- You are not returning from a vacation or a business trip;
- You hold the currency in your grimy little hands;
- Do we consider this exchange from an investment or a casual exchange from a hobby or trip since we did buy large sums of it and held on to it for so long?
- Worst case can it be a long-term or short-term capital gain?
- What about State and/or Local income tax
- Are there any “special” exceptions to taxes based on State Dept policy towards Iraq and currency exchanges? See below link. Scroll down to Section 6. This might be what we are looking for.
Iraq – United States Department of State
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