Can you stop the IRS from getting your assets? Can you stop creditors from seizing what you work for?
The IRS can step all over you if you owe money for cancellation of debt income, say from a foreclosure or short sale or deed in lieuf of foreclosure. Even for settling credit card debts.
Can a trust stop the IRS? Can a trust help you regain your financial freedom even after you’ve got into financial trouble?
This article will explain what you can do and might be very helpful if you are in this situation.
Disclaimer: I’m not a lawyer and can’t give legal advice so check everything out and don’t hold me responsible. I have examples in here that are often composites drawn from the files of my students, acquaintances and friends.
Alright, so let’s begin.
Using a Trust to Protect Assets in Bankruptcy
Samuel came to the US as a young man and began a remodeling business. One thing led to another and he began to build houses on spec. Spec houses were a huge business in the early 2000s, remember? He would buy a large lot with a teardown house and get the city to divide the lot into three lots, and build big houses and sell them before they were done.
Great business. He went from struggling to earning $500,000 a year.
Until things kinda slowed down. Samuel didn’t look closely enough at what the economy was telling him. Sales started to become more competitive and soon he realized he had like 8 or 10 houses that were sitting there month after month costing him money in interest payments, property taxes, maintenance and all kinds of other expenses.
No worries. He dropped the prices and held on until things got better.
But the didn’t get better. They got a lot worse.
And Samuel had run his life according to the $500,000 income. He had four beautiful fine cars, a lavish 7000 square foot house and a country club membership that cost oodles. Suddenly all Samual had was monthly expenses and no income.
Eventually Samuel found himself in bankruptcy. There was no choice. He had to hold onto his assets and the creditors and the banks and the credit card companies were all after him and filing bankruptcy stopped them and gave him some breathing room.
Now, Samuel used the bankruptcy process to try to gain a new start. But he ended up in a chapter 11 that became a chapter 13 and he faced five years of court supervised financing.
He had a huge concern, which was how to start over without the bankruptcy trustee taking what he built up from now on. What people don’t realize in a chapter 13 is that if their income rises, the trustee can swoop down and take away whatever extra income they get. So what incentive did Samual have to build something new, if the bankruptcy trustee could come and take it away.
The solution for Samuel is the Fresh Start Trust. The Trust can own the buildings and lots that Samuel is buying. Samuel works for the Trust and earns a salary that the bankruptcy trustee is okay with. Then when Samuel emerges from bankruptcy, he can distribute Trust assets and the bankruptcy trustee can’t do anything about it.
Using a Trust to Keep the IRS Off Your Back
Another situation is a young man who I’ll call Jordan. Jordan had badly miscalculated his earnings and run into some of the same type of problems as Samuel. He had made very good money for awhile in the subprime mortgage business but when that went south, his expenses were very high. He had a great house, a boat, and an expensive boatload of credit card debt.
Jordan didn’t want to file for bankruptcy. He consulted a bankruptcy lawyer and he decided to settle his debts using my Dime on the Dollar system. That worked well but now Jordan faced a huge hit from the IRS for cancellation of debt income.
It isn’t a matter of whether the bank sends a 1099 or not. There are other aspects to reporting income from cancellation of debt and Jordan realized that he faced a problem.
He used my IRS Bulletproof system to become “currently non collectible” so the IRS laid off him. But meanwhile, his income was only about $40,000 a year and Jordan worried that as he rebuilt his financial situation, the IRS would take whatever extra he was earning and what use was it to risk everything and rebuild, only to have the IRS take it away?
To a great extent, Jordan learned that if he could hold off the IRS for 10 years then the debt to the IRS would disappear. How to do this?
Jordan’s dad set up a Fresh Start Trust for Jordan and now Jordan works for the Trust. The Trust accumulates the assets and Jordan can only get a salary from the Trust. When things have blown over and the ten years is past, Jordan can get to the Trust assets he has worked to build and the IRS can’t touch him.
These are two great uses of a Fresh Start Trust.
A Trust to Protect your Assets If You Are Having Financial Problems
Notice that each of these people, Samuel and Jordan, both already have financial problems. Most asset protection doesn’t work if you already have problems. There are fraudulent conveyance problems with just transferring your assets to a trust. With a Fresh Start Trust, these problems disappear.
A Fresh Start Trust can be used if you are facing a messy divorce. Susan has worked hard and built her medical practice and she and Joe are not getting along. Joe got into some major substance abuse problems and has squandered the couple’s nestegg on drugs and gambling. Susan wants out.
Susan can use a Fresh Start Trust to take over a new medical practice she was recently negotiating to buy. Since the Trust will own it, Susan won’t have to include that medical practice in the divorce proceedings.
These are some of the uses of a Fresh Start Trust. I am planning on re-releasing the Fresh Start Trust system soon and I ask you to post your questions or situation here and I’ll see if I can’t get some answers. Not for advice to you, as I am not qualified to give you advice, but for information only and for others to learn from.
Post your questions or comments here. Thank you.