A huge topic that covers spending, saving and investing. One additional topic
for your line family is handling family money over multiple generations. This
topic is so large that we will break it into several subsections in
later iterations of this website. But before we go on you must understand
WE ARE NOT LAWYERS and that WE DO NOT GIVE LEGAL ADVICE! We are
giving you information so that you will have an idea about some of the tools
that are available to you and your family. We strongly suggest that you
seek advice from a poly friendly attorney.
What we are doing is letting you know about some of the tools available for
line families to manage their financial affairs. These tools include
joint tenancy with right of survivorship, living wills, power of
attorney and advance medical directives. Our goal is to let you know that
these tools exist. We will discuss when and how these tools might be used.
These discussions are not intended to replace legal advice from an attorney
licensed to practice law in your state. Laws differ from state to state.
We are not big fans of wills used by themselves for management of
personal and communal property. To demonstrate this we would like
to show you what would happen to a typical poly quad as the partners die.
1. Let’s say one partner of the married couple goes first. This one is
generally pretty simple with the legal wife getting all the common property.
2. For the sake of brevity let’s say that two of the remaining partners
die in a tandem surfing accident. The court looks at the wills and finds all
the property goes to the last partner.
3. Eventually the last partner dies. With no surviving poly family
partners, the secondary beneficiaries collect the loot. It is possible that
the court will liquidate the real property (land, houses and outbuildings) and
convert it to cash for the final distribution baring instruction to the
contrary in the will.
4. Perhaps this person had a couple of favorite charities that got
bequests. Maybe there are 3 or 4 distant blood relatives who also receive
goods and/or monies. If the various monies are small enough (under 2-million
dollars in Washington State) there is no estate tax as of 2011.
5. So, the accumulated wealth of this poly family (let’s say 1 home
free and clear and 2 homes with good equity plus saving, investments and personal
property) is scattered among 6 beneficiaries. The collective economic power is diluted.
The fact is, as money (cash, property, investment, etc) increase, the economic
power increases faster. A simple example is the power to borrow money. Let’s
say you wanted to borrow $100,000 to buy some undeveloped land. If you need 10% down
that is $10,000. That means you have borrowed $90,000. If you double the down
payment to $20,000 you now have the power to borrow $180,000. You can continue
this example by adding the value of developing twice as much property that you
bought with your $20k. The term for this is leverage. The more money you have
the more power you have to do economic activity. And this power is multiplied
as your family accumulates financial assets.
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Divide these assets with a will and the economic power disappears quickly.
This is the reason that most low- and middle-class families stay low- and
middle-class. These are not the rules that the wealthy and powerful live by.
Wealthy families use other financial tools to distribute and control
money, trusts being one powerful tool.
Here’s the secret that is in plain view; when Mr. and Mrs Rothschild pass away,
the family fortune is not carved up by wills. Family businesses stay in the
family. Family investments fund trusts to support family members. The wealth
is managed – never chopped up and distributed.
To be fair, the above example quad family is more about the limits of a “horizontal
poly family” meaning all the partners are of a similar age. Even using trusts
and joint tenancy, this family would still end after the last person died.
Let’s not dwell on single generation families and move to the next topic.
“Put not your trust in money,
but put your money in trust.”
-Oliver Wendell Holmes, Jr., 1841-1935
(Poet and Associate Justice of the U.S. Supreme Court, 1902-1032)
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What is a financial trust? Here’s what the IRS says, “In general, a trust is
a relationship in which one person holds title to property, subject to an obligation
to keep or use the property for the benefit of another. A trust is formed under
state law. You may wish to consult the law of the state in which the organization
Is this an example of the new warm and fuzzy IRS that says you “may” want to
consult your state laws? We don’t know why or how you would avoid consulting
your state laws when determining the types of trust accounts that would be right
for your line family. Again, we urge you to get assistance from your bank, credit
union, investment professional, attorney, etc.
A little clarification:
Typically there are three parties involved in a trust account:
First is the person who has the property to be given away. Depending on
laws and customs of your state and location this person may be referred to as
the: settler, trustor, grantor, creator, founder or donor. Of all these word “donor”
makes the most sense to us and we will use that term for the rest of this discussion.
Second is the person who will eventually receive the property. This person
is called the beneficiary. That’s it, simple and straightforward.
Third is the person who holds the property for the beneficiary, that person
or business is the trustee. Note: the donor can also be the trustee.
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Types of trusts:
When a person dies, a trust can be part of the will. This type of trust is called
a “Testamentary Trust” and is used in managing an individual’s property upon death.
As such, this type of trust is not relevant to a discussion about your line
We are interested in trusts made by living persons for living persons (in Latin:
inter vivos). What, you expected to talk about law without learning a little
Latin? This type of trust is divided into “revocable” trusts and “irrevocable”
trusts. Irrevocable trusts are often used instead of wills to avoid the costs
of probate and the contesting of wills. Again, this information is for individuals
and is of little import for line family operations.
Trusts can be used to gift a child’s education. IRS guidelines regarding the
gift tax is discussed in the CHILDREN section of this website. Briefly, the IRS
provides exemptions from the gift tax for educational gifts and in calculating
the tax free amounts you can give to a child in a single year. A trust can
be set up so that the money is doled out periodically to pay for tuition, books,
room and board while at school. Managing money is one of the strengths of trust accounts.
If you have family businesses that are generating income for your line family
holding company, you might want to use trust accounts to pay pensions to your
older members who are working part time or are retired.
Trusts are often used for tax reduction – not to be confused with tax avoidance.
Trusts are often used to lower estate taxes, if any. Tax reducing
techniques are best used with the help of a professional financial planner,
tax accountant or attorney.
Investment trusts are used to leverage individual contributions into a pool of
money that can invest in diversified holdings for the benefit of all people in
the trust. In this case the donors are also the beneficiaries.
Ever hear the stories about millionaires who have gone bankrupt two or three
times, only to return to wealth and power? We wondered how that is done. It turns
out that trusts are at work in this case. Discretionary trusts are the tools in
play. Property can be hidden or isolated from creditors. Some methods are legal
and some are not. It is not in the scope of this website to go into details.
Trusts are a powerful tool for managing money over multiple generations. Businesses
under your line family’s holding company (probably an LLC) can be funded through
trusts. Trusts can manage the profits from family businesses to the benefit of
all family members. Trusts help your family live by one of the rules of the wealthy,
“Own nothing and control everything.”
John D. Rockefeller
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Can your family LLC be a trust donor?
We have yet to find a specific answer to that question. All of the trust information
we have found talks about a person or married couple being the donors for a trust.
To answer this question we looked at the Nevada Revised Statutes, chapter 86 –
Limited Liabilities Companies. Item 3 under 86.281 says that an LLC can, “Sell,
convey, mortgage, pledge, lease, exchange, transfer and otherwise dispose
of all or any part of its property and assets;” (emphasis ours). We looked
for the legal definition of convey and it seems that it only refers to real property.
While it seems like funding a child’s schooling or maintenance with a trust must
be done by an individual, we are still researching the question. The family LLC
can be used as the trustee, but we can’t say this enough – consult an attorney.
We invite corrections from anyone with legal credentials.
Contact us at: email@example.com.
We strive to provide accurate information.
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Yours, Mine, Ours
A limited use tool
How financial power grows
Tools for controlling property