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past articles we've examined ways to sell your income or other properties without
paying capital gains taxes. But about 1/3 of the property owners I meet in my
office or at my seminars are planning to keep their real estate and pass it on
to their children. They come to see me to find out how to protect their property
from lawsuits & creditors, and how to avoid estate taxes. In this issue, let's
talk about the strategy for "keepers" who don't intend to sell their
property. The "Ultra
Trust" is a great solution if you're a "keeper". The Ultra Trust
is designed to eliminate Federal Estate Taxes and the costs & delays of the
probate process, as well as provide tremendous asset protection. The
legal name of "Ultra Trust" is "An Intentionally Defective Domestic
Grantor Trust". It sounds kind of funny. Why would we want something that
is intentionally defective? Here's why. Making the trust intentionally defective
allows the trust to perform two different functions, but it's still a valid trust.
The Ultra Trust is treated as a "Revocable Trust" for Federal income
tax purposes, and an "Irrevocable Trust" for asset protection and Federal
Estate Tax purposes. Because of this, the Ultra Trust is Federal income tax neutral.
The Ultra Trust provides the best of both worlds. Generally,
an Ultra Trust is used to own real estate and Subchapter "S" stock.
Unlike some other structures, there is no loss of Federal income tax benefits
associated with real estate ownership by placing real estate in an Ultra Trust,
such as $250,000 per spouse exemption for a primary residence. You still can take
that deduction with the Ultra Trust. Because the Ultra Trust is treated as an
Irrevocable Trust for asset protection purposes, it also provides significant
protection from judgments and liens from creditors on assets placed within the
Ultra Trust. We see the "Ultra Trust" being used more and more as an
active planning structure. You
probably already have a Living Trust. A Living Trust avoids Probate, which is
a court procedure where your assets, upon your passing, are distributed pursuant
to the terms of your will or pursuant to state law. Probate should be avoided
because of its lawyer's fees & costs, time delays, and its public nature.
The only person who makes any money in a probate proceeding is the lawyer. If
you're fortunate enough to own real estate in more than one state, your heirs
will have to go through the probate process in each of those states. These additional
state probates can literally wipe out a great deal of the assets for which you
worked your entire life. So, having a Living Trust is minimally necessary for
everyone who owns assets. If you don't have a Living Trust yet, you need to call
me right now. Even
though having a Living Trust is better than nothing, it doesn't eliminate Estate
Taxes, and it doesn't provide any Asset Protection. Let's look at the estate tax
issue. The current US estate tax is 43% for estates over $2,000,000, and if your
estate is more than $2,750,000, estate tax is $337,500 plus 46%. In addition,
California imposes another 9%. In 2011, the US Estate Tax will increase to 53%.
When you think about our government's financial situation, I don't think we can
expect that the Estate Tax will be reduced in the future. How
about the importance of Asset Protection? Asset Protection means no person or
entity can touch your assets except those you choose, and that your assets you
worked so hard for in your life will only go to those you choose. It's unfortunate
in our society that it has become all too common to have one crazy lawsuit or
out of control government agency take your entire estate. With some simple prior
planning, you can protect your assets. The old saying of "it gets darkest
just before it goes pitch black" should be kept in mind when thinking about
creditors or lawsuits. The whole idea of asset protection is for you to keep your
assets after you acquire them. No
matter what business venture or activity you are involved in, it's quite simply
foolish for any business or investment to not be somehow coupled with either a
domestic and/or international asset protection & estate plan. There's no excuse
for having an asset or potential asset placed in a position that can be made available
to a creditor should you make a mistake either in that venture or some other venture.
For more information and a no-cost consultation, please contact me at (310) 800-6333
or e-mail to mail@tracytaguchi.com. 
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