Personal Trust Training Call #5 - How to Structure Your Personal Trust if you have Active Income

4:05PM Mar 28, 2023

Speakers:

Dr.Gina Gaudio-Grace

Keywords:

llc

trust

taxed

business

personal

partner

member

wyoming llc

net profit

election

question

partnership

division

document

entity

interest

s corp

income

assets

state

Progress. Well welcome everyone to the next training on personal trusts. I honestly don't know what training number this will be, you'll have to look and find that out. Well, it might not be six because I might reorder the numbers. Got it? But technically, yes, it's the sixth session that I can say. Anyway, on today's call, what we're gonna be talking about specifically is how to tie how to work on structure for the personal trust, if you have active business income. So if you look at the personal trust instructions, which you'll find in the accounting folder, that abundance group.com forward slash conveyances in there, find the sub folder for accounting and you're looking for instructions dash personal trucks. I have added a paragraph one D like David is basically what that says is, if you have active business income doesn't matter what kind of business income it is, whether it's from short term rentals of less than 31 days, whether it's a traditional brick and mortar type business like manufacturing, restaurants, roofer electrical contractor, mold, remediator, fast food restaurant, any of those things. Active income is earned directly inside of a personal trust will be taxed. At three and a half percent higher than the highest individual tax bracket. Even if you're married filing jointly, it's still going to be taxed at that same individual rate plus three, three and a half percent. That's a huge amount of tax. So in order to avoid that as a possibility, in need D use a different structure. That active business income either needs to run through an LLC, not an LLC with an S corp election but a regular LLC. It would be taxed as a partnership. And that LLC would be tied to your personal trust or there's just no other way around it. If you use the business trust, depending upon how you structure it, it still ends up getting taxed on anywhere from 0% of the income to about 20% of income. But it's not going to get taxed at the highest individual tax rate plus three and a half percent. So, what I want to talk about today is all the various ways of having active income, not run through the personal trust. It should go without saying but I'm gonna say it anyway. The personal trust like the business trust, should never have w two employees that the personal trust is acting as a withholding agent for so maybe I have an assistant and that assistant is a W two employee and you only have a personal trust and that is use a company like bamboo HR or some other payroll company where that payroll company is actually acting as the withholding agent you don't ever wants to personal just acting as the withholding agent. You don't want the business just acting as that either because it turns the trust into a fiduciary to about somewhere between four and six governmental agencies depending upon where your jurisdiction is located. So if you've got employees, you're definitely going to need to have something outside of the personal trust. That will be with payroll. If you're going to act as a withholding agent. It should also go without saying that if there's any kind of a licensing requirement maybe you have real estate Commission's because you're a real estate agent. Maybe you have a liquor license. Personal trust cannot be used for business licenses or service licenses of any type. So again, it would require you to have either an LLC with no S corp election or a business trust if it's allowed for that type of license. Some ways insurance can be done through the business trust, some can't. If in doubt, check with the agency that's giving you the license and find out what they allow. So, that being said, there's loads of scenarios where you're going to use something outside of the personal trust. Just for purposes of licensing, being a withholding agent. It can be so many different things. But the one I'm going to talk about today the most is the asset protection implications. As well as the tax mitigation. So the most basic structure is to have the personal trust and a single LLC. That LLC can have you as a member it can be you as partners as a member, that part of it doesn't matter. And to tie the two things together, you're going to use a statement of membership interest management interest and partnership interest. The one document I did not set up in advance hang on let me go pull that up real quick. So again, in the conveyances folder, there is a document called template dash, LLC operating agreement. The LLC operating agreement document really isn't an operating agreement at all. It's a document called the statement of membership interest, partnership, interest and management interests. And it acts to amend your operating agreement. So it literally becomes an exhibit to the operating agreement. So at the top, it started out with the name of your personal trust. At the top you start out with the name of the LLC. Underneath the title as of filling the date you want this to be effective. There are literally three sections on this first page. There's membership interest, there's partnership interest, and then there's management. Those three things are different. The first part, members of interest identifies the owner of the business. The middle section, a partnership interest identifies those individuals or entities that are going to actually have taxable income from the net profit. Those two things are not synonymous with one another. You can have people who are owners, that are also partners. But you can also have people that are limited partners who are not owners. So don't get the word owner mixed up with the person receiving taxable income because it doesn't necessarily equate to that and the manager is exactly what it sounds like. A manager manages the LLC. In some states you have member managed LLC it's and manager managed LLC. What's the difference? Well, the manager managed LLC means the manager is not also a member. So that manager is not the legal equivalent of UN or some states like Tennessee, also have director managed LLCs. The director is just the manager. No different it does not have to be true that the director is also a member you can have someone who's a director in Tennessee who is not a member. So if you look at your operating agreement now, it should tell you who the members of that entity are if it's an existing LLC, the two ways that can work. You might be the sole member, or you might be one of several members. So I'll go through what that looks like in the sections. Both ways. Let's start with the simple one. You are the sole member. So at the top, the membership interest would have your name, your address, and in the right hand column, it would say 100% member

pretty straightforward. Now let's say Ben and I are partners in a business. I have 50% He has 50% We're both members of the LLC. If that were true, then the membership interest would have my name and address, Ben's name and address and on the right hand column it would say 50% Remember, for each of us. Now, when we get a partnership interest. This is how your trust gets tied your entity guns apart partners. There are general partners and there are limited partners. general partners have management rights and voting rights. Limited Partners have neither. Limited Partners legally are the equivalent of an investor. Limited Partners are not a legally equivalent of an owner. general partners have ownership. So if someone's listed as a general partner, they would also be listed as a member. So in that example, that add just a single member LLC where you hold 100% of the membership interest. You are going to have your personal trust becoming 90% limited partner. So in the partnership interest, you're gonna have your name, your address, then you're gonna have the trust name, and the trust's administrative address. And remember the personal trust the name is the name of the trust by its trustee, the name of the trustee. So my personal trust is abundant ones are when he has trust. So abundant ones just comma by it's just DT comma Dr. Gina Marie Gaudi Oh grace, my address in the right hand column. It's going to show me as a general partner, and it will say 10% General Partner next to the trust it will say 90% limited partner, literally after writing the words general partner and limited partner. Under manager, whoever is identified as the manager with the state or in the operating agreement. That's how it goes. Usually for manager, it's whoever the manager was prior to inception of the trust. This document gets dated. It gets signed by the member manager as well as any other members. It can also get signed by any limited partners. Any questions about this document

you know, I have a question is, is this very similar to a document we might use in the business trust for division?

Sometimes, but usually if you're doing it with the division, you're gonna have the division become the sole number in which case you don't necessarily need this document to do that. You just amend the operating agreement to do that.

And then if the operating division is partners with the LLC for purposes of payroll, for instance, I should do this.

So we've covered that business trust training, but I'm gonna talk about it again, for the benefit of newcomers. You may have heard that if you're partnering with an LLC, just because you've got payroll. What will happen is you'll set up an employee lease agreement between the division of the business trust and that LLC. Through the employee lease agreement, the division is going to pay to the LLC, that money needs to cover its payroll. So that's usually how you do it if the whole purpose of the LLC is just to act as the withholding agent. So that would mean revenues would come in to the division of the business trust directly. Now 100% of the revenues are in the business trust, one of its expenses is going to be the employee leasing payment. Makes sense. Now, if the point of the LLC is in part to handle payroll, but it's also going to be used to run the day to day operations of the business, then it can look a little different. If that LLC is going to be any state other than Wyoming or Tennessee. You wouldn't use the statement of membership interest management interest in partnership interest so that you're tying the LLC usually to the personal trust through that document. Instead between the LLC and the division of the business trust, you're going to use a professional services agreement. So you might use all three things together. Does that answer the question, John?

Yes, you said except Wyoming.

If you haven't my only know I'll see or Tennessee director manage LLC, then you don't really need this form. Because you'll just make your division of the business just a map the sole member of that LLC. The whole point of doing this whether you're using the statement of membership, membership interest partnership interest in management, or whether you're making a division result member of a Wyoming LLC, the point is tax mitigation. So how can you get the maximum tax mitigation given the structure that you're running your business? Truly the number one best way of doing it? If there's active business income, is to use a division of a business trust. That is the sole member of the Wyoming LLC. So that 100% of the income to that to that business, let's just call it ends up becoming tax deferred in perpetuity. If you use the statement membership interest in partnership interest, it's not ever going to get you 100% tax deferral, it could get 97% but that's about it, you're still gonna get taxed on some portion of the income. That makes sense. So

this is a template. I get it from the business trust and stepping back I joined a bit late. This would apply also for a Wyoming LLC, starting a personal trust are not necessarily as you just explained for the business trust.

Yeah, if you're doing the division of the business just as a sole member, then this document isn't necessarily correct. But if for some reason you're in some other state, then you might use both the division of the business trust as well as the personal trust. To help get maximum tax mitigation. In which case this document still applies, but it applies to make a personal trust to a limited partner in that LLC, not the division of the business trust a limited partner in that LLC.

My question if it wasn't yours, you'd explain for business trust you

asked to join us live if you guys still hear me

okay, I thought it was me.

This document is not going to be notarized, right?

It does not do this you already totally lost everything is that. I have no idea what you would ask. Would you mind if we held that question? Either Wednesday or Friday call or even a Monday business? Just write it down for me. Okay, thank you. Okay. And as you indicated in the

partners section.

Fights trust me, you will basically find the address who said you would use your address, I thought it will be.

So there's two there's two partners and the example I gave the first is you individually as a 10% general partner. The second is a trust which shows as the name of the trust by trustee the name of the trustee, and then it uses the administrative address of the trust.

And I think my situation I have a Wyoming but I don't have a business trust and my assumption was that I do still feel this statement out there. Correct.

If you do not have the business just you absolutely do still fill this out. And you fill it out exactly the way it just talked about. Now, one of the questions I get from people all the time, is, if I'm naming my personal trust as a 90% limited partner in the LLC, then do I get to add anything to my demand? Here's an answer that if the current operating agreement before inception of the trust states, the amount that was capitalized, the amount you used to capitalize that LLC, let's say it says you put in a million dollars of capital, so you have a million dollars in your account in the LLC. In that case, you can actually do a bill of sale to convey 90% of that interest that you held to your personal trust. And the basis is a million dollars you capitalize the LLC with so 900,000 of that is being shown on the bill of sale and therefore energy are 268 or 265 account. However, in all the years I have been doing this, I have seen exactly two operating agreements that talked about the amount of capitalization in the LLC. I have never seen it other than those two instances and I've probably done this with 1000s of LLC. I don't understand why people don't show for the amount of capital that they're putting in right in the operating agreement. But whether you got it as a template online, whether you got it from your CPA or even an attorney, it is rare to show the amount of capitalization if it does not specify the amount of capitalization in the operating agreement, regardless of what state the LLC is organized in. You cannot convey it on a bill of sale and therefore it does not add to a 260 account or a 265 account. Sorry guys, it's just it's the God's honest truth. And the reason you can't is because there's no way of valuing your interest in that LLC. So it is what it is. Let's put it that way. Now. Second example I wanted to give you is let's say you've got two partners. Or let's say you've got three partners. You might have one partner with 40%, membership, one with 30 and other ones 30, totaling 100. If you are that 40% member, then in the partnership interest, you're going to convey 90% of your 40%. So nine times four is 36. So you're going to show you as a 4%. General partner, partner number two as a 30% general partner, or with three as a 30% general partner, and then your personal trust as a 36% limited partner. I know that seems weird, but remember, partnership interest is only going to dictate who gets a share of the net profit. It does not dictate ownership. In that example, in the membership interest, it's still going to show you holding 40% As a member, partner number two holding 30% As a member, partner number three holding 30% as a number that designates ownership, not income. So hopefully that makes it a little bit clearer for you guys. Now there's a page two to this document, which is meeting minutes you know how we love our meeting minutes. At the top is the name of the LLC underneath it, the effective date. Then it starts with a meeting was held for the name of the LLC on and then he put in the effective date. That's the date the meeting was held. The phone was discussed in agreement upon by the members present. In that section you add in the name of each of the members, whether it's a single member LLC, that or let's say a member present and you'd put in your name. If it's a multi member LLC, then list each of the members underneath that members of the blank LLC so putting the name of the LLC will remain the same, namely the individuals and then put in each name of the member and in parentheses shows their membership interests and the partnership interests will be changed to and now you're gonna list out anyone that's getting a partnership just put in their name in parentheses after their name, that percentage of partnership interest as a general partner or limited partner, close parenthesis go to the next one if there are any. And when you get to the trust, make sure you have the name of the trust by its trustee and the name of the trustee. As a percent whatever the percentage will be that can be up to 90% limited partner and blank so your name and then dividual as manager or whoever the name of the manager is. A copy of this change will be forwarded to the registered agent and put in the name of your Registered Agent for the LLC. The purpose of this action is to make the blank trust so put in the name of the trust and limited partner with no management rights. In the LLC, dated the blank day of blank so just put in the effective date of this document and then it would be signed by the member who is also a manager as well as any other members as well as actually no not as well as just the members. On this document. You do not have a signature line for the trust or the trustee, only the members in the manager any questions about the meeting minutes

so that gives us a structure that we are looked at up here with the business owner having 10% As a general partner, the personal trust as a 90% limited partner. Now there's three steps for implementing all of this. Step one is to create that statement in membership of interest, partnership, interest and management and just like we just talked about step two, is to deal with the assets that might be in that LLC. So whatever assets are in the LLC, is a two step in advance. It gets sold as an income distribution of equity from the LLC to you as the member then from you, you conveyed to the personal trust and add that to your 260 account or your 265 account. It's usually done on a bill of sale. If there's real estate involved. That also would have a deed if there are vehicles involved. There will be a bill of sale for motor vehicle as well as vehicle transfer form. All of the documents are in the conveyance is folder. You're going to use the value at basis. So remember, if you look back at the personal assistants structions that before you go through invading of any assets, you have to decide whether or not you're going to play musical chairs. It applies just as much with assets from an LLC. The reason that you don't want to have the LLC conveyed directly to the trust is because the demand now will go back to the LLC. You don't want the demand going to the LLC. You want that to go to you. The LLC would never have a reason to take money out of the trust in a way that's not getting taxed. You would have a reason for that. And let's say that LLC, it decides you're not going to use it anymore a few years because he expanded to a business trust, you're going to operate just out of the business just we'd still have to keep that LLC if it out the demand though, is there's no other way to get the value of that demand, not demand no can't be transferred to any person for any reason. So if for no other reason than that, it needs to be done as a two step conveyance. Likewise, it's done as a two step advance so that you don't have a negative tax consequence by getting the assets into the trust. Why do you want to get the assets into the trust in both ways? Number one, if you leave the assets in the LLC that completely and totally unprotected as you know, it is very easy to do what's called piercing the corporate veil. I talked about this quite often. piercing the corporate veil means they can get to the assets in the LLC. They can also here's the corporate veil to get to your personal assets. So in the event of a lawsuit, if every asset is still outside of the trust, make trouble. Now the other reason for moving the assets into the personal trust if you have active business income, if you want to do better than you're still paying taxes on 10% of the net profit having the assets in the personal trust is going to let you whittle away at that 10% So you're not getting taxed on all 10%. So it's important to think about getting those assets into your personal trust if at all possible. So those are the three steps now here's the tax implications of this. Revenues are all going to go into the LLC. First thing that will happen is the LLC will make a lease payment to the personal trust does it still needs the use of those assets that are now in the personal trust in order to conduct business? That lease agreement can be for up to 70% of the net profit. But don't think of the lease amount as just a straight percentage. Have you ever said that in the audit? Oh boy, it would not be pretty. It needs to be a value. That is the equivalent of what you would pay to go out and lease those same items. We're not just talking about physical items, like computers. Desks, printer. Cars, trucks, equipment, are also talking about intangibles, including things like your operating your operations manual, your domain name your trade name, your brand or otherwise. As well as things like your prospect list or customer list. All that stuff has value. It's not terribly difficult. It's just tedious to go out and do some research to figure out if you had to lease that piece of equipment. How much would you expect to pay? Do some of that research or all of that research? document it? I would do that documentation through meeting minutes. So that you can easily justify up to 70% of the net profit being paid by the LLC to the personal trust as a lease payment. So if we had $100,000 in active business income, gross coming into that LLC, you'd have 70,000 of it, that would get paid to the personal trust as a lease payment. Then that business still needs to pay any other expenses that as as well. And that's why you figure the least amount on net profit, not gross. And the balance that other 30% is also going to be divided up based on that statement of membership interest partnership interest in management interest. So if your trust is a 90% limited partner, it's gonna get 90% of that net profit or $30,000. That was in the trust if there's 100,009 levers that would go to the personal trust and report on a k one. So in the end, he was a general partner ended up with 3% of the nonprofit. You just end up with everything else in a way that becomes passive income to the trust. Even though it started out as activating code to the LLC. Does that make sense to everybody? Questions Okay, so moving right along. If you have a foundation you can help mitigate taxes even further. You have a personal trust, an LLC and a foundation. How does the foundation help you? Well, in the example I just talked about $100,000 of net profit in the LLC 70% of that would get paid to the personal trust as the least

of the remaining 30% 27% would get paid to the personal trust and report on a k one and the other 3% belongs to you and reports on a k one that shows up on your 1040 return. But legitimately and legally, you can deduct up to 30% off of your adjusted gross income or AGI as a charitable donation. So if you took 1% of the net profit and you personally had it come to you and you then donated it to your foundation, you could get your tax mitigation down by 98%. So you're only getting taxed on 2% of the net profit, not 3% or 10%. So that can help as well. Just remember, although this is a great solution to help save some money on the front end, so you don't need a business to us. It still leaves you massively exposed. Even though the assets got sold to the personal trust. There's one big asset that still remains in the LLC, and that's the future income of the LLC. So whatever the net profit is, is still left at risk. Granted, it's a smaller risk than it was before with out the trust holding the assets. But it is still a risk. And if we set up a business trust and use the division that will help you mitigate taxes to 100% tax deferral in perpetuity. That really can be a game changer for people. Now, in the business trusts training, I talked extensively about making a division of the business just the sole member of a Wyoming manager managed LLC, or a Tennessee director of managed LLC. I've had a number of people ask me if the personal trust can become the sole member of a Wyoming LLC, so that you still get the 100% tax mitigation. Here's how I'm going to answer that. The personal trust is in the business district. But it's in a business that isn't, quote unquote, business. It's in the business of providing for the welfare and well being of the beneficiaries of the trustee. If you start making your personal trust, a division or your personal trust a member of a Wyoming LLC, it starts to look like it's in business. It's not there as the business being the welfare and well being of the beneficiaries and trustees. I don't know how an auditor would react from the research I've done. I think it's going to be an either or type of scenario. Either you get that trust pay for those hands up transaction, health education, maintenance support. Or you get to have a personal trust. Get the 100% tax deferral by being the sole member of a Wyoming LLC. I don't think you would get both ways would you agree with me on that?

Yeah, so if you really want to stretch the envelope and make your personal trust a sole member of Wyoming entity, don't tell me about it. Please don't tell me about it. Because I really do think that puts you on shaky ground if you're ever audited or if your trust is ever audited, I should say. So just be careful. Whenever I'm advising clients or any of our trusted advisors are advising brands, or even any of our tax attorneys or tax advisors are advising plans, we want to tell you the correct way of doing things. If you choose to do it differently. That's your prerogative. I certainly would never consider making a personal trust the sole member of Wyoming LLC, if my intention was to always have a personal trust in that role. And nowhere down the line. Do I have a plan to add a business trust? If you're doing that until such time as you can afford a business just got a little bit of a response in the event of an audit, but I still think you're on shaky ground with taking deductions for the trust when those times provisions are those expenses I should say. Questions about that.

Okay, so there is no limit to the number of LLCs you've been tied to a personal trust is in strategies we've just talked about. You could have 100 LLCs. And your trust could be 90% limited partner, and each and every one of them doesn't really matter whether there's one LLC or more than one LLC. And if you do have partners in your LLCs and those partners don't want to get trust. There's no reason why you can still mitigate your taxes by modifying the operating agreement to name your trust as a 90% limited partner in your share of that entity. Totally legit totally allowed. The one thing that comes up though, if you have partners that aren't interested in the personal trust for themselves, is what happens with the assets because if you only convey your interest in those assets to your trust, so let's use that 3% example with yielding 40% Each of your other two partners holding 30% each. If you conveyed say 40% of the assets to your personal trust, that's no more protection than what you had to the LLC. The reason that's true is because your partner's interests are not in the in the trust. If someone came after the LLC for a judgment and got to the 60% that's outside of a trust. Well, they can't split up that asset it split up a truck early. So in actuality, if they can get your partner's interest, they're going to be able to get 100% Not just departments interest, so you lose all of the asset protection. But there's still value in doing it simply because of the tax mitigation. It's a lot better than paying 100% of the tax liability like you are before the trust. Let's see what else did I want to tell you guys about this. So as I said at the onset of the training, this can be done for so many different types of things. It can work with a PLLC in most jurisdictions that I've looked at. So let's say you've got a law firm, that law firm that operates out of a PLLC there's no reason why the law firm can't take on an industrial. So you are the sole member, then you've got your interest is 10%. As a general partner, you're just gonna still have a 90% as a limited partner all because it's legally not the owner. The LLC is whoever the licensed individual is asked to be a sole member they can't have non licensed individuals that would be true for doctors, dentists, chiropractors lawyers might also be true for CPAs and enrolled agents for tax firms. The number of things can be done in a PLLC real estate agent sometimes some states can do with a PLLC. My opinion, if you're using an LLC, for active income, and tying it to your personal trust, I would still strongly consider setting up that foundation because the foundation is not only going to help mitigate that remaining tax liability that you're still getting taxed on it's also going to help you with your food and potentially even your travels so some of your funds. So it's still a good idea to have at least the personal trust plus the private family foundation at a minimum. But if you're gonna go that route, and you've got active business income, the additional cost of the business trust is really minuscule as compared to the massive amount of flexibility you have with it by setting up what I call the trifecta package. And the tax savings as well as the asset protection. In almost every case I've seen always justifies having the business just along with the personal just that there's any kind of active income. If you're a real estate investor, I know a lot of our clients are you really do not need that LLC to stick around at all. If you set up a business just enter personal trust and you can still get 100% tax deferral in perpetuity whether it's on lease income or capital gains income but more than four or five properties in that personal trust. If a lawsuit ever arose because of an issue at property number one bladers attorney is gonna go out and do research to find out if the owner owns anything else. If you've got a personal trust, every single property in the personal trust is going to show up on public record as being owned by the personal trust. It would be no different than holding all of your real estate in your own personal name. That was a giant target on your back. He would never consider doing that forever. Maybe the first few properties but that's about it. It's the same thing with your personal trust doesn't mean that plaintiff's attorney is going to be able to pierce through the corpus of the trust to get the properties but that plaintiff's attorney could show make it a big pain in your butt. If you've got say 20 or 30 properties all in the personal trust, they can go on one at a time trying to pull them all in. Now you're just stuck having to defend Pelennor money to attorneys. If you've got more than those four or five, set up a business just because of the business trust, you can ditch the LLC completely if you're a real estate investor. Each property would be held in a separate division of the business just so each property on public record has a totally different name. And then you'd have a property management division that would help collect the rents and take care of expenses etc. So even if you're a real estate investor that use nothing but a personal trust and in the past, you held all of your properties in an LLC. You no need to do it that way. And you don't want to do it that way. Unless you only got a handful of properties. Otherwise thinking about business dress. I know there was something else I thought of when I scheduled this training and I cannot for the life of being sick before it was. Anybody else? Remember what it was? In my mind? We were talking about our group calling Oh for sure. Okay, with that, I'm gonna open it up to questions. Do you want to hit me up on that question? One more time. I'll see if I can figure it out.

Well, first of all, apologies. Comcast

has worked on sites I've had to switch to cell phone two or three times. I think it was answered FTP. The question was the use of the

partnership form for a personal trust

with a Wyoming LLC. And you entered that clearly sounded like unlike the business trust division, you did recommend the partnership form for use of a Wyoming LLC, a personal trust? Correct. Different from the business division so you mentioned it. Thank you.

For the last topic that you just mentioned for folks that actually have partners that don't have a trust, but if they have a personal trust in the business trust, would they still just do the joint venture in the JV, but the question goes more towards if the individual doesn't have a personal trust, what would the interest holders connected at would it be best to have their interest in an LLC?

At least it's better than nothing? Not a lot better, but it's better than nothing. So yes, I would do it that way.

Based on everything else I've heard that seems to be the best way of doing it. In this particular case.

pushing really hard on a trust. Just because you want the trust can give the assets. So let's use that same example I keep talking about you have 40% ownership. You got two partners each with 30%. If everybody gets trust, then what you're doing with the assets is you're selling 40% to your personal trust 30% department number two's personal trust 30% of our Number three's personal trust. Even though the asset is spread out over three personal trusts. It doesn't work the same way as it did in the LLC. That asset is still going to have identified asset protection because 100% of it is some personal trust. doesn't all have to be in a singular personal trust. So Fisher partner on getting dressed.

So then the other question that some of the clients have is those that have had LLCs in the past if they end up forgetting what crazy to have multiple businesses multiple LLC if they're going to the individual divisions, how should they just each business get its own division? Or should we basically look at the business and how they're structuring because sometimes businesses are done more by asset class that comes to

play it's not a general question. It's not a general answer that applies to everybody. In many different policies, it really depends on what those LLC is are doing. Is the point of the LLC to hold a single piece of real estate, is it they've got many different active income types of businesses, they're just different types of businesses. It's not a one size fits all kind of answer. Can you give me an example of two of why they have many different royalties?

In one client's case, they have a construction company over multiple jurisdictions, so two different states. And then they also have a retail retail store. You know, that's just one one good example where they had multiple LLCs to basically one for the retail store, and one for the construction company, the other the equipment and the liability that it brought.

That's and because they're in multiple states, they have more than one construction company LLC, right. Right. So yeah, that would be potentially three different divisions within a business just and given the nature of those businesses, they more than likely have employees, so they may even still keep the LLCs intact, or the payroll and the construction companies if they need licensures it based on the data, all of the revenue go through that LLC, but so if the money came into the LLC, it would pay for payroll, it would pay for expenses, and that profit would be distributed to whoever the partners are, in which case, the only partner is going to be your division of your business just so it's still 100% tax deferred in perpetuity, because that structure converts the active income to the LLC to be passive income to the division so long as it's a Wyoming LLC. So they made it

though and I think they're going to keep it wouldn't you recommend that then as a liability that like workers comp has that that stays out in the LLC? Absolutely. Can't go into the division.

Yeah, just like with payroll taxes. It is not something you should be doing out of any of the trust's

got it. Okay. I think that's

you know, I got requested so you mentioned about if it can't be a Wyoming or a Tennessee LLC, to partner with or to have the division of the business trust be in 90% limited partner, you said to ask the state, you know, department about that, where the taxes and stuff are considered. So, since a lot of people aren't knowledgeable about these kinds of trusts,

interest the state about making some making the division a limited partner, you ask the state, if an out of state LLC can be used. an out of state PLLC can be used with the type of license required in that state.

No they can't. I guess I misunderstood them because so it doesn't matter if you're aware of Pennsylvania, the state of Pennsylvania. The business trust can be a 90% limited partner of that correct?

Yes, that doesn't cause any issues.

All right, thanks. Well, I misunderstood that I'm sorry.

So that out of state LLC in Pennsylvania, can you not get foreign registration and an agent

so it has a medical license

um, that also be concerned for like, just like a booster LLC, or our LLC was that just

it just depends on the profession. Doctors, Dentists, chiropractors lawyers. A lot of times they won't like to have a foreign filed LLC, because it's holding that license. But with roofing contractors, electrical contractors, that shouldn't be an issue. They may have to have a Wyoming LLC, that then becomes a foreign filed entity in the state that they're in. Let's say it's Hawaii. So they set up the Wyoming LLC. They make a division of the business trust the sole member of the Wyoming LLC. Now the Wyoming LLC goes to Hawaii and creates a foreign entity filing that doesn't change anything at all. In the Wyoming LLC. It still converts the active income to passive income because the member doesn't have voting rights or management rights. wouldn't change that one bit to do a foreign violence.

Katrina This is Rita I think what you're going to talk about today was the 220 account

No, no, that doesn't have anything to do with Oh see is tied to personal trusts.

So Dr. Gina would it be out of the purpose of today's meeting because he went through an LLC with a personal trust? I'm just wondering if you could just like quickly go over the like the Wyoming LLC and the business trust and then how would that go to the personal trust? And I think this is more like a review than anything else. And the private family foundation if you were just designing like what you think would be the optimal.

That's the first few calls in the business trust training. Okay, so I'll just send you over to that. If you don't mind. No problem. The other thing I want to touch on because this happens quite often, quite often clients come on, they set up a personal trust. And now they have to tie the entity to that trust. But the entity is an escort. So can we tie in as score to personal trust? Anybody? Know Correct. No, no, we should have the chance. Yeah, No is the answer. The most you can do with an S Corp. is to have up to 49% of the stock owned by the personal trust. However, it can not hold the majority interest in an S corp or even a C Corp for that matter. So if there are others shareholders, and that escort cannot have more than 49% of your interest, sit and your interest. Hopefully 49% of that keeps that trust as a minority shareholder. But that's the best you're gonna be able to do. You're not gonna be able to do any better than that with an S corp. So please, please, please, if you've got an S corp, they can give out changing it so that it becomes just a straight LLC. Then

that goes back. And that goes back to the control aspect. We can't control entities.

Correct. There's a couple of different ways that you may have an escort most of the time you started out as an LLC, then you took an S corp election for tax purposes. That's an easy cya. In that scenario, you file a Form 8832 with the IRS in that form, you're telling them that you want to change how the LLC is taxed. It used to be an S corp, here's the shareholders. We now want to be taxed as a partnership. Here are the partners and you'll list both the general partners as well as the limited partner. That's easy to do. So if you want a date, that is prior to the date of the filing of the ad 32 You can only do that until the end of March each year. But you can always do it at that date for a future date. So if your trust inception date was January 1, you didn't get around actually revoking the S corp election until April 30. Well against like it can't go backwards after the end of March. So the effective date of the conversion from an escorts to being taxed isn't as being taxed as a partnership, wherever an effective date of April 30. Not January 1, one thing that just started, so be aware of that. The other way you can become an S Corp is you first created a C Corp. And then your C Corp took in US election. That one's a little tougher to fix. Because you can revoke the US election. But when you do that, it's still a secret. In some states, a handful of states I should say. There are ways of converting a C Corp to an LLC. But more often than not, you're not going to be able to convert a C Corp to an LLC. You can create the LLC as an evil entity and then switch it from being a C Corp to being an LLC. Check with your tax advisor though because that could have tax consequences in doing it. Ways is there any way you know of the C Corp taxed as an S corp to an LLC without it having negative tax consequences

still hear that you're like, Oh, you're here. Please. Yeah, did you get my question? Yes, I did. And I

already had the fake to another factor of editing. Some states allow it. But

as you indicated, it's

problematic. It is problematic. Do you know any way to convert the seeds to an LLC without there being negative tax consequences?

Right. Anybody have any questions about that?

You know, the standard. Yesterday, is pulling out an ADA or two to make the LLC taxed as a partnership. It's an IRS Form. And the question is as available as a courtesy call to the election in the last six months. And so, it seems to suggest that if we made a selection in 2019 Over the last year or two it might not be able to make the election in fact in the partnership. Have you run into that problem or as I said possibility for my being

so what was the election you did in 2019?

That's been a single member, LLC. Up to that point.

And that was just passed that taxes are passed on to take direct pass through

bathroom before the election and pass through after the election but we're just looking for the favorable tax.

So ways can you revoke the S corp election? If it's been around less than five years?

Their rent listed but

let's say it's only four years ago that you did the Escort election. I'm wondering

what I'm talking about an additional election.

The wording on that so basically, the way it reads is has an eligible entity previously filed an entity election that had an effective date within the last 60 months, right right. When the effective date be referring to the formation

that is not the formation of the entity. It's that's status. Can you read that statement when we're done?

Has the eligible entity previously filed an entity election that had an effective date within the last six months?

What I'm going to argue is that the revocation is not what we're talking about here. The player election, which was in 2019, and that the dates are close we'll just say offs. Sorry, I missed the admin see what they say I guess what they tried to. They tried to deny becoming a partnership. I don't know why they really care, but I just thought I'd see what you'd have to

do. Yeah, that's interesting.

So Andrew read you read the regulations. So in the instructions in the first column at the bottom, it says, if an existing entity decides to change classification, they do so subject to the six month limitation, we'll see instructions for line two and these regulations section 301 That's the one that's 3d Three, etc. For details. I see that

I have not ended up in the past and I actually know of one that was only three years. It started as an LLC took an S corp election, almost simultaneously like a week later. And then three years later, wanted to convert from being taxed as an S corp to being taxed as a partnership and the IRS allowed it

interesting what they sent me when I removed the US election was what happened to the second letter they sent me said You are now a member LLC. I don't know why they sent six months later. We're now in a multi member LLC. And you need to file attempts expect well that's exactly what I'm trying to get here. But last year I realized that this person just voted through treating it as a single member. So I don't know if I'll drive myself here or what.

Jason, when you did the revocation. Did you did you have anything in that revocation, talking about adding another member to the PLLC?

I don't understand why. They would have sent that second letter saying you will now be taxed as a multi member LLC. If you only had a single member in the first place, and you didn't tell them you're adding any members. That seems strange to me. Because if it was a single member LLC, S corp election, and then revoke the S corp election, it would go back to being a disregarded entity for tax. purposes. It wouldn't build the house for you now being a multi member. Now when I was doing the 32 is even if you show that 29 teammates, if you simultaneously are saying that you now have added a member and therefore by necessity, need to be taxed as a partnership that might help

you put that in the description NOW or would you bring that up later recognized?

I would put that in the description now to overcome the other issue. So I wasn't

making it up. Because I've heard it down. He says this entity has only one owner provide the vote. Well, I'm reading I put it in there and then considering it just prior to the change. But the next question and the only other option is is it owned by one or more affiliated corporations if somebody did return, and that's not the case before or after? So it's like you're in the one corner or you're not over your record. And that's weird too. So,

no, that's not true. It's definitely not true. You might want to make the addition of me as a member happened before you file the 8832 so that when you file the 8832 you're reporting two things simultaneously. You've now switched from single member to multi member and you've also taken on an unlimited partner, all of which requires it to be taxed as a partnership. And I think because it's being done concurrently with the change in ownership structure is gonna fly easily. into So everybody understands what I just said. If the PLLC under is doing the filing for had a single number before and that's Is that his name is Chris and now wants to switch from being taxed as an S corp. To being I'm sorry, it would be taxed as a disregarded entity to being taxed as a partnership because of the addition of Chris's personal trust. Well, that could be an issue because he's had the revocation of the election take place in 2019 and less than five years ago, but his daughter Annie, is now being made a member of the PLLC along with press. Well that's an ownership structure change. And by necessity it can't be taxed as just a pass through disregarded entity, it must now be taxed as a partnership. Simultaneous with that, since both Chris and me have personal trusts, each of their personal trusts are becoming 45% Limited Partners. Each of them remain 5% general partners and each of them are 50% members. So that change in ownership structure from one member of the team members is what's going to justify filing the 832 even though there was a different election within the last five years and then final taneous since you have to file it with that purpose anyway. There's no way they're gonna have an issue with also adding the limited partners are not members. They're not owners of the legal equivalent of investors. Good question, Andrew. Thank you for that.

One more show. Our partners and partners will miss to hear other than other than an exclamation would anyone be signing up for that? Yes. All the new documents

that lets anyone sign in the trustee of each of the two personal trusts which is only from an analytical

I think I'm over it except I

feel better. Any other questions?

Okay, so, then I was just looking at the schedule for trains and this week will be listed as week five when they put this all together. Let me see what our next training call is going to be.

Our so I've been asked to do a training on record keeping or keeping, record keeping or trusts whether it's personal trust your business just as irrelevant. So let us do that next week. Okay. Sounds good. Okay, that's, that's next Tuesday.

Okay, okay. Can I ask? The Chart of Accounts was reviewed? We could go over so yes, online at that same link.

I just got it back from Dave late yesterday. So I haven't uploaded the updated one. But I will do that today.

I need to schedule a session with my bookkeeper who has the old charts account to get them recipe so I looked at it

tomorrow tonight and uploading it just so everybody knows what to look for. Uploading it as an XML file. It has multiple tabs in it, too. There's one down for personal trust. There's another tab for business trust. The Mani chat for donations because each one has a different chart of accounts. So I'll be in one document for you. Next, record keeping not bookkeeping, but record keeping. What kind of file structure do you want on your computer? What kind of file structure do you want and physical stuff? How do you keep records for your trust?

Right? And probably where do we turn on all the musical chairs, activities, et cetera, et cetera?

Yeah, that's all that we cover. Have a great rest your day everyone and I will see you on our group Julius. Bye for now.