The Offshore Money Book by Arnold Cornez

Author:Arnold Cornez [Cornez, Arnold]
Language: eng
Format: azw3, epub
Publisher: UNKNOWN
Published: 2020-09-10T16:00:00+00:00

The Business Trust

The business trust (BT) (---) remains with us to this date. The IRS recognizes four general classifications of trusts: the ordinary trust, the investment trust, the liquidating trust, and the business trust. You probably are most familiar with the ordinary trust, usually cre- ated by a will or an inter vivos declaration. This trust is intended for the orderly management and distribution of assets upon death or providing for holding property of minors.

The business trust is either an evolution of the "Massachusetts business trust" or an entity unto itself. Its advocates claim that it is an excellent asset protection tool. Some even claim it results in tax reduction. Well, that depends.

Some structures include two trusts in series: an operating trust held by its beneficiary, the holding trust. Initially, the business or real property is transferred to the operating trust. While the origi-

OTHEl STRUCTURES RHO STRRTEEIES 155 nal owner remains on as an asset manager, he or she is receiving Form 1099 income for his or her services. The trust is "insured" in its own name and defends any lawsuits against it and the asset man- ager. But the original owner of the asset claims no interest in it any longer, and therefore he or she shouldn't be a defendant in any law- suit against the business trust.

The business trust is not a traditional entity, so few CPAS or busi- ness attorneys will recognize or encourage utilizing it. To find out more about it, you need to get with the cult that perpetuates it. The promoters are under heavy fire from the IRS because of their claims of tax avoidance. The BT and its progeny have been characterized by the IRS as being abusive trusts. It is promoted with promises of tax benefits without the taxpayer giving up control of the assets and continuing to derive benefits, as before the BT was put in place. The abusive BTS fall into five areas:

I. The basic business trust. The owner of a sole proprietorship transfers ownership of his or her business enterprise to a newly formed BT. Some promoters refer to this entity as an unincorporated business organization (UBO). In some situations, the transferor takes back, on a tax-free exchange basis, a certificate of ownership. These certificates have the appearance of a traditional stock certificate and are referred to as certificates of beneficial interest (CBIS) or units of beneficial interest (UBIS). By imaginative expense payments to the transferor and to other trusts that he or she has created, the BT has no or little taxable income. Promotional claims are also made that this eliminates the need to pay self-employment taxes. Further claims are made that since the CBIS or UBIS can be canceled upon death of the original business owner or transferred to the children for a token payment, you have avoided estate death tax liability.

2. The family residence trust. The transferor transfers title to the residence to the trust, as well as all the furnishings. The trust becomes the landlord.

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