Frequently Asked Questions

How do I know what type of trust is appropriate for my situation?
Nearly everyone’s financial plan will include some sort of trust. If you own a home or other real estate then a revocable living trust will ensure you avoid probate. If protecting your assets from creditor or judgements is a primary objective of your financial plan then you should consider creating a spendthrift trust in addition to your revocable living trust. If you own a business, then the significant income tax planning opportunities available by using a business trust in place of your existing business entity should be explored.
Who does not need a trust?
If the value of your assets is so small that you will not trigger a formal probate then a trust would not be necessary component of your financial plan (i.e., Individuals who recently turned 18, recent college graduates with large student loans who have yet to accumulate significant assets, married couples who have yet to purchase a home, etc.).
Each state is responsible to make sure that upon death of a resident in their state, their assets are distributed to the heirs. They accomplish this through a legal proceeding called “probate”. Each state determines the amount of wealth that a person must have at the time of their death to trigger a formal probate. Some states define a probate estate at $10,000, others do not require a formal probate until a decedent’s wealth exceeds $150,000. If you wealth is below the probate for your state then your heirs are permitted to settle your affairs with simple affidavits.
Why should I structure my financial affairs around a trust?
A trust-centered financial life provides numerous planning opportunities that are not available any other way. As you transfer assets into your trust you separate the ownership of an asset from the beneficial enjoyment of the asset. This segregation of ownership and beneficial interest is what makes using a trust so powerful. Assets held in trust never go through probate - why because trusts do not die, people die, but entities do not. Assets held in a spendthrift trust are not owned by you so if someone gets a court order to seize your assets, those assets in your spendthrift trust are not in your name.
How do I determine which type of trust I need?
If all your income is all W-2 earnings and you own a home (i.e., average individual) then you should consider a revocable living trust.
Alternatively, if you earn at least $300,000 gross income or have $150,000 investable income per year or have invested net worth (i.e., invested assets not including equity in your personal residence or automobiles) of at least $1 million dollars then you should consider adding a spendthrift trust.
If you are engaged in a high risk profession (i.e., one that exposes you to a risk of being sued like a doctor, dentist, general contractor, etc.) or own rental property, then consider holding assets in a spendthrift trust.
If you own a business then you should evaluate the advantages that are available by organizing your business as a business trust verses as a traditional LLC or corporate entity.
How do I order a trust?
Once you and your advisors have determined that a trust-centered financial model is the best way to achieve your objectives, to order a trust you simply fill out a brief online questionnaire - click here to access the order form.
What does a trust cost to establish?
Unlike other trust companies, you cannot purchase just a trust from Encore Trust. Creating and executing the trust document is the easy part. Once the trust is created the real work begins - transferring assets, shutting down existing businesses, establishing new accounting procedures necessary to document your financial activities using the trust. Encore Trust set up fee is all inclusive for all the services you will require in the first 12 months. See Price Section of this website.
What are the ongoing management/maintenance costs associated with my trust?
Running your financial affairs centered around one or more complex trusts is not difficult but it does require attention to detail. While you can do many of the tasks yourself, we recommend you retain a knowledgeable person or management firm to assist. Our maintenance fees are structured as a percentage of assets held in trust. See Price section of the web site for details.
Why are Encore Trust ongoing management fees structured as a percentage of assets held in trust?
Diligent attention to operational activities required by your trust is the only way to ensure that your trust will accomplish what you intend it to do. Keeping accurate records, documenting and segregating ownership of assets and preparing and filing necessary tax returns are all required for your trust to adequate protect your assets and reduce your income tax liability. By structuring our fees around the value of the assets held in trust we are focus on each individual asset not the tasks involved.
Is my trust a separate tax paying entity and does it need to have a separate tax ID number?
Yes and no. It depends on the type of trust you have. Your revocable living trust is considered a grantor trust (i.e., the maker or grantor is also the trustee and beneficiary) by the IRS. Grantor trusts are not required to obtain a tax ID number as all income for a grantor trust is reported on the grantor’s personal income tax return.
Business trusts and spendthrift trust are considered separate tax paying entities and are required to obtain a tax ID number.
How do I get a tax ID number for my trust?
As part of our initial services we secure the tax ID number for your trust.
What does it mean that my trust is a “revocable trust”?
A revocable trust is one that can be modified or amended or terminated at anytime by the Grantor.
What does it mean that my trust is an “irrevocable trust”?
Once established, the trust becomes “set in stone”. An irrevocable trust cannot be modified, amended or terminated by the Grantor. Assets placed in an irrevocable trust are no longer “owned by you”. They are completely under the control of the individual you name as trustee.
What does it mean that my trust is a “discretionary trust”?
It refers to the role the trustee plays. In a discretionary trust, the trustee is given very broad powers to administer the trust in his sole and absolute discretion (i.e, in anyway they feel necessary) to protect, enhance and provide for those individuals named as beneficiaries.
What does it mean that my trust is a “beneficial trust”?
It refers to the rights of the beneficiary. A beneficial interest is the right to receive benefits on assets held by another party. The beneficiary receives income from the trust's holdings but does not legally own the assets in the trust account.
What are the income tax consequences of transferring my assets into my spendthrift trust?
Transferring your assets into your spendthrift trust is often the most difficult part of the entire process. Some assets are sold, some are assigned, and some maybe gifted. Each transfer triggers its own unique income tax consequence. We analyze each asset and determine the best way to transfer that specific asset.
What are the advantages of a business trust as compared to an LLC?
An LLC is an entity created and controlled by state statute. What is created by the state can be changed by the state. Alternatively, a business trust is authorized by common law.
What happens to my existing business when I switch my business activities over to my business trust?
Once your business assets have been transferred into the spendthrift trust associated with your business trust you existing LLC will be officially closed and final tax returns prepared. Terminating your business is included in the services we provide when your business trust is established.
What is the “situs” of my trust?
Situs refers to the legal jurisdiction that will be used to govern and interrupt your trust. Think of it as where your trust “lives.” You choose the initial situs and a properly drafted trust allows the trustee to change the situs to any state at any time.
Why is Wyoming the situs of my trust?
Because cowboys are cool. No, seriously they are.
We chose to situs all our client’s irrevocable trusts in Wyoming, because Wyoming has no state income tax and very favorable asset protection statutes. Finally, if you ever want to be the trustee of your own spendthrift trust, Wyoming law permits you to form your own “private trust company” for the sole purpose of managing your own trusts.
Who is the Settlor of my trust and what role does the Settlor play?
The settlor is the individual who creates a trust and turns it over to the trustee. They are also referred to as grantor, creator. In a discretionary trust, once the trust has been created and the trustee and compliance overseer officially accept their roles, the settlor’s job is complete.
Who is the Trustee of my trust and what role does the Trustee play?
The trustee of your trust is the individual or entity empowered to, and responsible for, all actions of the trust. The role of trustee is by law considered a fiduciary. As a fiduciary they are held to the highest standard of performance. The trustee ensures that the purposes of your trust are carried out pursuant to the instructions as delineated in your trust document.
Who is the Compliance Overseer of my trust and what role does the Compliance Overseer play?
The compliance overseer (also referred to as the trust protector) is the individual or entity empowered to make sure the trustee is performing their role adequately on behalf of current and future beneficiaries of the trust. The compliance overseer has the authority to remove and replace both trustee and beneficiaries.
Who is the Successor Trustee of my trust and what role does the Successor Trustee play?
The successor trustee is the individual or entity that will step in and act as the trustee if for some reason the acting trustee refuses or otherwise fails to act or is formally replaced by the trust compliance overseer. As successor trustee does not have a formal role in the day-to-day management of the trust. The successor trustee has no authority to act until they are officially appointed as the acting trustee. Once appointed as the acting trustee they have all the duties, rights and responsibilities associated with the office of trustee. The trust compliance overseer has power to remove and replace any successor trustee.
Who is the Beneficiary of my trust?
Beneficiaries can be modified at anytime by the trustee. The beneficiary is the individual or entity who receives the beneficial enjoyment derived from the assets being held in trust. The trustee is granted the responsibility, in their sole and absolute discretion to name the beneficiaries.
In a discretionary trust, as the individual who initiated the trust you work closely with the trustee to help them chose the correct beneficiaries for both income and assets held by the trust, as well as impose whatever restrictions or criteria should be imposed on a beneficiaries distribution that you feel is necessary to carry out the purposes of the trust. The trust compliance overseer has power to remove a trustee if the trustee fails to perform their duties to your satisfaction.
How do I terminate my trust?
Call Encore Trust. Terminating a trust can be extremely complicated. You should not attempt to terminate without professional help. The income tax implications vary asset-by-asset. Timing is critical, so it is not uncommon for the process to be spread out over a few years.
What do I do if I get sued?
The question is not if but when. Hopefully you never have to defend yourself in a formal lawsuit. If are sued you have to mount an initial defence, however. Expect to spend no less than $10,000 for your initial defense. Often times once opposing counsel realizes that your assets are held in a spendthrift trust the law suit is withdrawn. Attorneys look for deep pockets, assets that can be legally seized if their claim of wrongdoing or negligence prevails at trial. Once they realize that your assets are not subject to seizure they have little reason to press forward with the lawsuit.
As soon as you become aware of any litigation or potential legal action, immediately notify Encore Trust. We will help you determine the next steps.