Non-Grantor Irrevocable Complex Discretionary Spendthrift Trusts | ACTEC

Don't get fooled by non-grantor irrevocable complex discretionary spendthrift trust scams. An expert warns about questionable trust structures marketed online.
The American College of Trust and Estate Counsel, ACTEC, is a professional society of peer-elected trust and estate lawyers in the United States and around the globe. This series offers professionals best practice advice, insights and commentary on subjects that affect the profession and clients. Learn more in this podcast.

[@mastersbusinessalliancetrust]

Would love to get on the show and explain how the IRS code and trust law really works.

[@ActecOrg]

If this is your expertise, please learn more about becoming a Fellow of the College at actec.org/membership. This series' content and presenters are byproducts of ACTEC's professional programs during national meetings.

[@wdwilson397]

Per this video you didn't answer who is taxed during distribution and it's the Beneficiaries, not the Trustee or trust itself. It's good to warn people about abusing this trust but this trust is a very good trust when set up properly. Thanks for the Video!

[@JayButler-e3x]

Regarding the ACTEC - The American College of Trust and Estate Counsel “Non-Grantor, Irrevocable, Complex, Discretionary, Spendthrift Trusts” Around 4:20 into your video you stated, “Some of these structures have been theoretically copyrighted over multiple years.” Response: When one verifies the copyright, which has been available in the public domain for decades, it is not theoretical. Around 4:25 you stated, “There are claims that there are tens of thousands of these out there in existence.” Response: Would you care to say that to the faces of the more than 60,000 clients who have and use them? Around 4:30 you stated “They claim that attorneys and accountants and other folks have worked on these types of structures.” Response: Attorneys drafted the instruments and enrolled agents, accountants and tax attorneys file the 1041 tax returns. Around 4:50 you stated “You can either completely avoid or at least defer capital gains tax.” Response: Perhaps you should have read the entirety of IRC § 643 wherein, for example, subsection (a)(3) Capital gains and losses “Gains from the sale or exchange of capital assets shall be excluded to the extent that such gains are allocated to corpus and are not (A) paid, credited, or required to be distributed to any beneficiary during the taxable year, or (B) paid, permanently set aside, or to be used for the purposes specified in section 642(c).” Around 5:00 you stated “The argument is made that if you set one of these trusts up, creditors can’t get to it, even if you set it up for yourself or if you’re the one primarily funding it.” Response: You changed from commenting on a non-grantor trusts with spendthrift provisions to grantor trusts which are not afforded the same protections. This is deceptive and misleading at best. Around 5:25 you stated “If you’re in a special state, what we call an Asset Protection Trust jurisdiction, an APT jurisdiction….” Response: Properly drafted Non-Grantor, Irrevocable, Complex, Discretionary, Spendthrift Trusts are not formed under state law, but are created under your “right to contract” as enshrined in Article 1, Section 10 of the United States Constitution. You changed the subject in your argument, again, and talked about trusts formed under state law and not under contract law. Around 5:44 you discuss “If you set-up a trust for your yourself, you are not protected from creditors.” Response: The said Trusts in question are not set-up by yourself, for yourself or your own benefit. You are making arguments that have nothing to do with the topic at hand. Around 5:55 your stated “What if your parents set up the trust, but you’re the one funding it?” Response: Doing so would violate arm’s length rules or the Laws of Attribution and, again, have absolutely nothing to do with a non-grantor trust which is not self-settled, which was supposedly the point of your video. Around 6:01 you stated “You can only protect other people and/or third parties when you set up the trust.” Response: The Trustee holds legal title while the Beneficiary holds equitable title, which is why (among other reasons) in a properly drafted non-grantor irrevocable trust, both the Trustee and the Beneficiary are protected from judgment creditors as neither parties have both legal and equitable title. Thank you for validating the efficacy of the said Trust - despite the incorrect application of the argument. Around 6:40 you stated “If those assets are subject to the rights of creditors, it’s not a non-grantor trust. It’s a grantor trust, meaning you’re paying taxes on it.” Response: “Why are you discussing Grantor Trusts in a video which is supposed to shred the efficacy of non-grantor trusts? Your arguments have nothing to do with the very subject matter you purport to discuss? Around 6:52 you stated “Creditor protection comes when you fund and set-up a trust for somebody else.” Response: No-shit Sherlock. Through minutes 7-9 your parroting IRS Memorandum AM 2023-006 like an echo-chamber. Response: You are alluding to § 61(a) which defines “gross taxable income” and § 63(a) which defines “taxable income, after deductions”. You then JUMP to section § 643 (a)(3) and others in an attempt to invalidate their unambiguous language all the while skipping the wording at the very beginning of § 643 which reads, and I quote: § 643. Definitions applicable to subparts A, B, C, and D (a) Distributable net income For purposes of this part, the term ‘‘distributable net income’’ means, with respect to any taxable year, the taxable income of the estate or trust computed with the following modifications- What part of MODIFICATIONS to the previous definitions in the code eludes you? Around 8:33 you stated “What DNI (Distributable Net Income) is telling us - what § 643 is telling us - is whether this capital gains tax, or that other type of taxable income, whether is should be taxed at the trust level or the beneficiary level.” Response: Exactly! The said monies are not taxable to the trust and are (basically) only taxable to the beneficiary to the extent that the beneficiary receives a cash distribution from the trust. Around 9:38 you stated, “Here’s the problem for the people playing the audit lottery.” Response: You make assumptive and presumptive statements with other people’s intentions based on arguments that having nothing whatsoever to do with the very topic you are purporting to cover. Around 9:42 you stated, “Not only could the IRS find you…” Response: This is fear porn! Not only do you FAIL to state “what it is” the IRS would allegedly be seeking to find someone for, nor how a properly drafted “Non-Grantor, Irrevocable, Complex, Discretionary, Spendthrift Trust” fails to comply with any section of the Internal Revenue Code, you chastise your viewers “as if” they are already doing something which is somehow illegal and unlawful. Around 9:42 you state, “Whether (the Trust) is correct or not, it's possible you will show up on that list (with the IRS) and their could be not only back taxes owed, but potentially some large penalties and significant interest.” Response: So, now you’re claiming there is “a list” the IRS is compiling for people who legally and lawfully make use of the IRC to their advantage? Not that I would put the IRS past doing this, but where is your evidence for such a claim? You don’t provide any. Around 10:30 you asked “GPT… Can a non-grantor trust be used to defer income tax? YES!” Response: You go on to speak of a Grantor Retained Annuity Trust (or GRAT) to prove your argument that Chat GPT was wrong, but this too is a grantor trust and NOT a non-grantor trust. Around 11:15 you stated, “If you do your own research, it’s very likely you’re going to get the wrong answer.” Response: You sound like the discredited lame-stream media. "Don’t research things for yourself, don’t study, OBEY, and do what we tell you." People are smarter and far more awake than you give them credit. CONCLUSION: "Logic is an enemy and the truth is a menace." 1.) Don’t believe that properly formed trusts with spendthrift provisions work -> because self-settled grantor trusts designed for your own benefit may not protect you. 2.) Don’t believe that non-grantor trusts could help you to reduce or eliminate tax liabilities -> because GRANTOR trusts don’t do that. 3.) Don’t do your own research by reading and understanding the IRC (Internal Revenue Code) correctly like Chat GPT did -> because my non-sensical answer surrounding a grantor trust, which was irrelevant to the discussion at hand, is all you need to know to feel scared.

[@ThePike57]

What a phenomenal rebuttal. Well done.

[@mastersbusinessalliancetrust]

As a fellow distributor of these trusts, you saved me a lot of needed effort in rebutting another fear mongering video from yet another “expert” trying to sell his own services. Well done.

[@IntelligentBanker_JMR]

I know he's seeing these comments. Shout out to Nelson Nash. But especially S/o to Nelson 165.

[@303Estates]

Great video!! does your company offer review services? Thanks!

[@jimmywatermelon357]

Does Justin do plan reviews?

[@alecmancheski]

I'm wondering the same thing!