The Swiss Army knife contains a variety of basic tools in a tidy package. We don't have its equivalent in the world of investment. Instead we are confronted with a variety of financial tools which tend to confuse and mystify us. Like a deer along the highway caught in a car's headlight, we tend to be more dazzled by the brilliance of some schemes than enlightened. Consequently, we don't avail ourselves of the benefits that are there just for the asking. Perhaps by looking at each 'blade' in our financial Swiss Army knife, we'll be able to sort things out a little. Then we can take a quick look at the potential uses for ourselves.
Let's start with Trusts. First and foremost, placing something into the name of another as Trustee means the we no longer own it. The Trustee takes title in his/her/its name on behalf of the Trust. The Beneficiaries own the various rights, avails, proceeds, use, possession, and occupancy of any property in the Trust, according to the Trust Agreement, but they don't own the assets themselves. The conveyance of property into Trust should specify the rights, duties, and obligations of the Trustee and Beneficiaries. In all but a few States there is no requirement that the Beneficiaries be identified. Thus, the names of the former owners are no longer listed in the public records for all to see.
It's virtually impossible to discover who owns a beneficial share of a Trust if Trusts are 'stacked'. For example, suppose instead of buying a parcel of real estate, you formed a Land Trust and a corporation took title as Trustee. The Beneficiary of the Land Trust would be a Business Trust with a close associate named as the Trustee/Manager. The Beneficiary of that Trust might, in turn, be the Trustee of your Living Trust or other Trust formed as a part of your overall estate plan. Confused? It helps if you block this out as a flow chart. It can become much more legally confusing when each layer of this stack of Trusts is domiciled in a different legal jurisdiction and under different State laws.
Picture the plight of an envy-driven opportunist who is on the prowl for easy prey. If he spots an attractive residential property, he'll find only the name of the Trustee in the Public Records, not the Beneficiary. It's pretty hard to attack the Trustee for any incident which might be contrived to involve the property because the laws of most States protect the Trustee from liability associated with Trust assets. If the Trust Declaration requires that the Trustee not disclose the identity of the Beneficiary without an order issued by a Court of competent jurisdiction, you can see how difficult matters become if the Trustee is domiciled in a different State.
Suppose, a persistent antagonist somehow discovers that the Beneficiary is another Trustee in yet another State. He's got to go through it all over to discover the identity of the next tier of Beneficial ownership. Even when the bottom of the pile is finally reached, he'll discover that there's no practical way to attack the Beneficiary because the Beneficiary is an innocent party with regard to the real property.
Let's make things even more difficult. When real estate is placed into a Land Trust, if the Declaration of Trust and the Deed into Trust so state it, the rights of the Beneficiary of the Trust become personal property rather than real estate. Since these are intangible personal property rights, they aren't susceptible to attachment by liens. Thereby hangs the tale.
There's always the danger that a judge might be tempted to set aside a Trust under the Fraudulent Conveyance statutes. There are several defenses here. When property is placed into Trust for demonstrable business or estate planning purposes (all of which would apply in the above illustration), case law has traditionally protected the Trust. When a Trust is irrevocable, neither the person who formerly owned the property, the Trustee, nor the Beneficiary has the legal power to terminate it. This is a workable defense against rogue judges.
