Unincorporated Business Trust Organization Part 1
|Dr. Joe Sweet, M.Div., D.M.Th.|
|Business Centre: Trusts, IBCs, Common Law|
by Dr. Joe Sweet, M.Div., D.M.Th.
The following information is provided for educational purposes only. It includes the author's findings and opinions based on research and analysis of the subject matter covered. This information is not provided for purposes of rendering personal professional legal, accounting, or other professional services that are provided by a trained professional who charges and collects professional fees.
The author / publisher disclaims any responsibility for any liability, loss, or benefit incurred as a consequence of the voluntary use and application, either directly or indirectly, of any advice or information presented herein. No responsibility is assumed for any liability, loss, or benefit incurred as a consequence of the failure to use and apply the information presented herein. The reader alone deserves the credit or the blame for his actions or inactions.
The secret of wealth is control, not ownership. When Hassie L. Hunt, a famous oilman of Dallas, Texas, died as the world?s richest man, the only asset he owned in his own name was a 1974 Chevrolet pickup truck worth about $2,500. "His" total worth could only be estimated as it was never disclosed (the October 5, 1975, issue of the Dallas Morning News reported "guesstimates" which ranged between $2 billion and $8 billion dollars). The Federal Gift and Estate Tax in 1974 took 77% of personal property valued in excess of $10 million dollars; the IRS would have collected $2,302,300,000 (based on $3 billion dollar estate) if Hunt had owned the wealth himself. He did not; he merely controlled it through numerous trust funds.
Columnist Jack Anderson has noted,
"Vice President Nelson Rockefeller . . . paid no income tax in 1970. His brother, John D. Rockefeller III, pays a 10% federal tax as a matter of personal principle . . . . Paul Mellon, worth a cool one billion dollars, is able to get away with negligible income tax, as do other members of his fabulously rich family. And Texas oil millionaire Bunker Hunt has managed to live in luxury without paying any taxes at all in several years. They have made use of the law. It is the process that . . . makes a chump out of the person who does not distort his affairs . . "
There is no need to "distort" one's affairs; merely arrange them properly. Do not violate the law; make use of the law. The secret of the Super Rich seems to be in the manner in which wealth is conveyed to a special kind of trust that, instead of merely holding the property, actually owns the property. Thus the Super Wealthy, enjoying opulent and lavish lifestyles, are able to live and die as Paupers, but with their family's blessing!
All trusts are not created equally [it goes without statement that all trusts are not created properly]. There are basically two great classes of trusts: statutory trusts and common law trusts. The more popular and widely used statutory trust derives its existence and is defined, governed, and regulated by statutes to which it must strictly conform. A common law trust arises from contract under common law, the right to which has been secured by the Constitution and established and upheld by the courts.
The "secret" common law trust utilized by the Super Rich is unknown to many. Fiscal secrecy, privacy, is the hallmark of the common law business trust, and far from being illegal, it acts as a means to enable a citizen to exercise his lawful right to privacy.
While a "Declaration of Trust" and certain "credentials" may be made a matter open to public scrutiny, the actual contents of the trust contract and related documents need not be disclosed. The privacy permitted the affairs of the trust is perhaps its greatest feature. Failure to exercise one's right to privacy is perhaps one's greatest mistake.
Lawyers study and practice law, which, for the most part, involves statutory law. Since the common law unincorporated business trust organization (UBTO) exists and operates apart from the jurisdiction of statutory law, it escapes the primary attention of the legal professionals.
Do not expect the legal profession to promote UBTO's. Lawyers are not as monetarily advantaged as they are with wills and trusts. Wills and statutory trusts are sometimes referred to as an attorney's "retirement plan," whereby an attorney has himself named as the administrator and/or executor of the estate. It is said that attorneys may sell or otherwise dispose of their wills and trusts to other attorneys by the linear foot.
No attempt is made to suggest or imply that attorneys have no knowledge of common law or, in particular, of the common law
unincorporated business trust organization. Neither is it suggested that one could not consider the advice of a competent attorney for assistance in the preparation and/or evaluation of a UBTO.
It is not that wills and statutory trusts have no value. A will is better than nothing. A statutory trust, also known as an "inter vivos trust," "living trust" or "loving trust," has as its primary benefit the avoidance of probate and inheritance taxes, and if no business interests are desired or contemplated, a statutory trust is perhaps the preferred instrument. A common law trust organization has all the advantages of a will and a trust plus additional benefits and features not possible otherwise.
Several basic comparisons of the differences between a statutory "living" trust and a common law "pure trust" organization follows:
A Statutory Trust
1) Merely holds property until death
2) Is usually revocable
3) Has a statutory termination date
4) Protects, conserves property
5) Arises from statutory provisions
6) Splits legal and equity title
7) No consideration involved
8) Exercise of a privilege
Common Law Trust
1) Owns property in "fee simple"
2) Is always irrevocable
3) Cannot be terminated by statute
4) Business motivation
5) Arises from the law of contract
6) Legal and equity title not split
7) Consideration involved
8) Exercise of a right
The "secret" trust of the Super Wealthy is commonly known by several names: Massachusetts Trust, Pure Trust, True Trust, Unit Trust, Blind Trust, Common Law Trust (CLT), Contract Trust, Business Trust, Unincorporated Business Organization (UBO), to name a few. It is important, however, that certain features and nomenclature be used in order to prevent this entity from becoming subject to statutory jurisdiction. Trusts that purport to be CLT's, but which identify the trustor as "grantor," even if irrevocable, may be disallowed as a business trust because a unilateral granting or gifting of assets into the trust occurs to create the trust rather than the execution of a contract.
A CLT that does not contain, in the contract/indenture creating the CLT, a provision prohibiting the Certificate Holders from managing, controlling, or otherwise directing the affairs of the trust and its assets, becomes an "associated" CLT and is considered the same as a corporation or partnership for tax purposes. Therefore, it is essential that the CLT remain "pure" and "non-associated" by expressly not allowing the Certificate Holders to have any power or right to manage or control the assets owned by the trust.
The Certificate Holders are not vested with the right or power to direct the affairs of the trust; they are simply entitled to receive
disbursements of dividends from the Trust at the pure discretion of the Board of Trustees.
Much documentation supports the view that a UBTO, although having the form and name of a trust because title of property is
conveyed to trustees for the benefit of beneficiaries, cannot be designated or considered to be a trust in the ordinary legal sense of the term, but is actually more like a business organization. Such documentation follows:
Restatement of the Law of Trusts, 2d, American Law Institute, Washington, D.C.:
"The Restatement of this subject does not deal with business trusts . . . ." (p. 2). "Matters excluded. A statement of the rules of law relating to the employment of a trust as a device for carrying on business is not within the scope of the Restatement of this subject. Although many of the rules applicable to trusts are applied to business trusts, yet many of the rules are not applied, and there are other rules which are applicable only to business trusts. The business trust is a special kind of business association and can best be dealt with in connection with other business associations." (p. 4).
Title 26, Code of Federal Regulations, Section 301.7701-4(b):
"(b) Business Trusts -- There are other arrangements known as trusts because the legal title to property is conveyed to trustees for the benefit of beneficiaries, but which are not classified as trusts for purposes of the Internal Revenue Code, because they are not simply arrangements to protect and conserve the property for the beneficiaries."
For this reason several authorities refer to the "secret" trust plan, used by the Super Wealthy, by a name other than "trust." A
"contractual company" is one such designation [although "company" might imply, though not necessarily involve, the existence of "associates"]. Another uses the acronym "Colato" (Common Law Trust Organization). "UBTO" is chosen here to distinguish this entity from an ordinary trust.
Bear in mind that, while definite tax advantages are possible, it is neither proper nor lawful for a business trust to have as its only, express purpose the avoidance of tax. There must be involved a for-profit motive. Business activities must be engaged in, to "pass the smell test," i.e., to put substance on the form.
"Common law" relates to those customs and rules of antiquity which are found in (but not necessarily limited to) precedent setting court cases, and which is apart from the language of law. The difference between an entity, or person, that exists as a matter of
common law right and that which arises by statutory privilege is that, in the former case, the entity is free to do anything except that which is prohibited by law. In the latter, the entity must look carefully to, and remain within the confines of, the statute in order to exist and function.
The essential elements of the law of contract, absent in an ordinary trust, are present in the creation of a UBTO:
1. Two or more parties at "arm's length" (not related by blood, marriage, adoption or employment);
2. A transaction in the nature of an exchange involving simultaneous offerings and acceptances by the parties;
3. Consideration in the form of money or money's worth; and
4. A meeting of the minds.
The meeting of the minds concerning the terms of the contract is put to the test when the documents are put forward for signatures. If signed willingly with neither party acting under compulsion, and the terms are satisfactory, it is a matter of fact that the parties have had a meeting of the minds and have agreed upon the specified conditions.