Super-TRUST-Powers, Part V | Teleportation
If you possessed the power of teleportation, where would you go? Would you teleport yourself to work to bypass a stressful daily commute? Or move yourself upstairs at night after you’ve fallen asleep on the couch? You could play catch with yourself, or even transport onto the football field to intercept a pass from Tom Brady. Maybe you would transport strategically across all time zones to maximize your sleep time.
That’s great, but why do we want to teleport a trust? After all, shouldn’t they be locked up in a safe deposit box or something?
Trust teleportation puts the focus not on the physical document itself but rather on its situsThe place to which, for purposes of legal jurisdiction or taxation, a property belongs., or place where it is administered. In other words, if its terms need clarification, which state laws will apply? Or, which state has the right to tax the trust? What state court has jurisdiction to hear lawsuits against the trustee? To obtain a favorable outcome on these and other issues, one state’s laws might be more preferable.
Super-TRUST-Power: Teleportation
Secret Weapon: Changing Jurisdiction
Transporting the administration of a trust from one state to another may be desirable for a number of reasons, but the most common are tax savings and asset protectionThis general term refers, logically, to protecting assets from claims against trust beneficiaries. Read More.
Tax Savings
Imagine a trust that is currently run in a state with a high income tax rate. You might ask, “If grandpa can hibernate in Florida for six months and one day each year to take advantage of ‘the nice weather,’ then can a trust likewise decide to pack up its assets, hire a moving company, and leave town for greener pastures to avoid paying state income tax?” Since all grandfathers are wise, the answer is yes!
Assets generating a lot of taxable income each year could be segregated into a separate trust that is written to force the trust, rather than its maker (grantor), to pay the taxes. Assuming the situsThe place to which, for purposes of legal jurisdiction or taxation, a property belongs. [location] of the trust is properly established to tie the trust to a state with no income tax, like Florida, then all income is received into the trust tax free.
It’s like taking a trip down the interstate, trying to make good time. A few miles away from the state border you reason with yourself, foolishly, to speed up well above the speed limit because “the cops can’t pull me over once I cross the border” since that is outside their state’s jurisdiction.
Your location matters. And so it is with a trust.
This is not without considerations, though, such as whether it really is best for the trust to bear tax responsibility as opposed to the maker of the trust. Generally speaking, a trust pays tax at the highest (federal) tax rate of 37% once reaching a much lower income threshold ($12,500). An individual (grantor) does not reach the 37% rate until $500,000 of income.
Asset Protection
Have you ever dreamed of writing a trust that is out of reach of most creditors and not taxable to you but still eligible for certain tax benefits at death and in which you are the primary beneficiary for life? Have your cake (protection) and eat it too (enjoy the assets) would be an understatement with the flexibility a trust grants in regards to situsThe place to which, for purposes of legal jurisdiction or taxation, a property belongs..
Some jurisdictions permit what are commonly called “self-settled asset protectionThis general term refers, logically, to protecting assets from claims against trust beneficiaries. Read More trusts.” They are self-settled in the sense that you create, fill and benefit from the trust, yet the assets that you fill it with are protected from creditor claims.
How is trust teleportation accomplished?
The epic sci-fi series and films Star Trek provides the image that comes to mind for many of us when talking about teleportation. Any fan of the show just needs to hear the words “Beam me up, Scottie,” the words of Captain Kirk when requesting to be transported back to the Starship Enterprise from some obscure planet. Futuristic sound effects would accompany a slowly disappearing Kirk from his current location, only to see him then reappear back on the ship.
While it usually takes lawyers slightly longer than that to disassemble a trust and put it back together in a different location, a change of situsThe place to which, for purposes of legal jurisdiction or taxation, a property belongs. can be done! Customarily this involves changing trustees to an independent trusteeSpecifically in relation to the trust Grantor, the IRS effectively defines the term for what it is not: a person who is not a related or subordinate party. Read More with ties to the state of choice, having the trust own property in the state and, of course, changing the terms of the trust document itself.
Which brings us to the crux of this superTRUSTpower: including provisions in your trust today that will allow for a change of location in the future. Not having this language in the document will require court involvement and approval to make a move (translation: slow and costly process), which is like Scottie having to ask the Starfleet Command Center for the power to beam up Captain Kirk from Planet Dimorus. In the meantime, Kirk gets shot by poisonous dart-shooting rodents.
As with all machinations by lawyers, there are considerations with this type of planning. Namely, the loss of control to an unfamiliar trustee, little — if any — ability to change your mind and additional costs. But in the right situation this planning is powerful. By making your trust a superTRUST, you too can enjoy the power of teleportation whenever (and wherever) you like.
Keep your x-ray vision on the lookout for a collected volume of Borchers Trust Law’s superTrustpowers series, or catch up on previous issue today!
Read issue I, Atomic Manipulation and Shapeshifting, here.
Read issue II, Invincibility, here.
Read issue III, Healing, here.
Read issue IV, Super Speed, here.
