Unincorporated Business Trust Organization Part 2
Unincorporated Business Trust Organization Part 2
A contract may be freely entered into by anyone except for a minor or an in-competent. Of course, no contract would be valid which was entered for the purpose of engaging in immoral or illegal conduct.
A Common Law Unincorporated Business Trust Organization may be best understood by comparing it to a corporation:
The Incorporator of a corporation is comparable to the Creator of a UBTO. Both act for and on behalf of the entity being created in order to bring it into existence.
Likewise the Investor of the corporation and the Exchanger of the UBTO provide the assets (property and/or money) that form the
corpus (body) of the entity being created. The investor of the corporation purchases the stock and is called the Stockholder. The
exchanger of the UBTO exchanges his assets for the trust's Certificate of Capital Units and is called the Certificate Holder. However, this identity is short lived.
In order to achieve the identity and status of Pauper, the Exchanger exercises his/her right to direct the initial distribution of the Capital Units and assigns them to certain other Beneficiaries. Thus the Exchanger retains no reversionary or beneficial interest in the assets conveyed into the UBTO.
The essential difference between the two entities lies with the identity of the owners. In the instance of the corporation the
stockholders are the owners, and the directors are associated together with the stockholders for the purpose of engaging business
for profit. It is this factor of "associates" which is the most distinguishing feature signifying a corporation and which provides the
reason an "associated" type of common law trust is considered taxable as a corporation at corporate rates.
In a Pure Business Trust that is non-associated, the contract of the trust vests the office of trustee with the whole title, both legal and equitable (no title splitting). The trustees are thereby endowed with the exclusive right and power to manage the business and to conduct its affairs as fiduciaries on behalf of, yet free from the control of, the Beneficiaries/ Certificate Holders.
The exclusive right, power and control of the trustees is the single greatest contrast between the UBTO and the corporation.
Stockholders would not wish to lack all legal rights, to not have officers and be able to select, approve or disapprove the directors or
their methods of conduct over the corporations operations. No one would wish to risk all in such a situation. However, in an
unincorporated business trust organization, the Exchanger usually has no difficulty releasing ownership and control when he can
trust the trustee as he trusts himself. This system follows the idea of personal friends reposing full confidence or pure trust in each other. It is easy to comprehend why "trust" nomenclature fits so well.
It may be difficult to visualize how anyone could happily convey all his assets permanently and irrevocably, retaining no ownership or control, and not feel a sense of insecurity, loss or deprivation. The answer lies in the defacto control that occurs as the Exchanger trusts the Creator. The Creator of the trust appoints the First Trustee after the exchange and execution of the contract.
While the Creator may appoint himself as the First Trustee if there were a particular advantage for doing so, the Creator may also
appoint anyone else he might choose. In consideration of the best interests of the Beneficiaries, he may decide to appoint the
Exchanger as First Trustee. The trust would be a sham, a mere "alter ego," if the Exchanger were to appoint himself as First Trustee or assign himself the trust's beneficial interest, but such would not occur with a properly executed UBTO.
The Exchanger naturally would want to have himself appointed as the First Trustee in order to control the disposition of the assets, but this desire is not secured within the terms of the contract which expressly prohibits the appointment from being legally or contractually required of the Creator. However, the Exchanger's wishes are fulfilled, not by contractual or legal obligation enforceable by governmental intervention, but by the trust relationship that exists between the parties involved.
There is a crucial point that must be understood: the Exchanger, as an individual, is a different person than he is as First Trustee. It is a court-established point of fact that an individual can be considered to be more than one person and can function in various
capacities as a separate legal entity or person. Bob Smith can be the president of XYZ Corporation and chairman of the board of ABC
Charity. He is recognized by law to be three separate persons: Bob Smith the individual, Bob Smith the president, and Bob Smith the chairman of the board. In the same fashion the Exchanger, while retaining no legal or equitable title of the assets conveyed irrevocably into the UBTO, if appointed as Trustee, will hold absolute title, in a fiduciary capacity for the benefit of his beneficiaries, and enjoy full control of those very same assets.
Bob Smith the Trustor / Exchanger, in his capacity as an individual, would not own or control the trust assets, nor would Bob Smith's Beneficiary/s, the Certificate Holder/s, own or control the assets. However, Bob Smith, appointed by the Creator as Trustee, would own and control the assets in a fiduciary capacity. This has been clearly recognized by the courts and practiced by the super wealthy. Bob Smith, as an individual, does not own, nor control, nor benefit from the assets of the UBTO; as an individual he becomes, lives and dies a Pauper, but with the blessings of his family!