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Yours, mine and ours

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 out book, Creating A Line Family. 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 you will have an idea about some of the tools that are available to you and your family. We strongly urge you to seek advice from a polyam 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 wills, trusts, joint tenancy with right of survivorship, living wills, powers 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 family property. To demonstrate this we would like to show you what would happen to a typical polyamorous 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 polyam 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.

5. So, the accumulated wealth of this polyamorous 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 is another rule of the rich; when Mr. and Mrs. Gotcash 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. Family wealth is managed – never chopped up and distributed.

To be fair, the above example quad family is more about the limits of a “horizontal polyam 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, 1902-1932)
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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 organized.”
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 family’s finances.

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 (generally illegal). 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 often at work in these cases. 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.

A Note About the Dreaded "Death Taxes"

The term "death tax" is a scare tactic used by Tea Party radicals who don't understand how estate or inheritance taxation works. Death Tax is not an official term and we avoid any supposed tax professional who uses the term. Check out the following to get the current (April, 2021) information on estate and inheritance taxes. Most people reading this will never have to pay a dime in these taxes.

Estate taxes are based on the value of the deceased's property and are paid before the money is distributed to heirs.

As of 2020, when an individual dies, their estate is subject to federal taxes on amounts over $11,580,000. There are no federal estate taxes on the first $11.58 million, the exemption from taxes threshold.

The following 11 states and the District of Columbia also collect estate taxes:
  • Connecticut:
    Exemption threshold $9.1 million in 2022, will match the federal threshold in 2023
  • District of Columbia:
    Exemption threshold $5.6 million
  • Hawaii:
    Exemption threshold $5.49 million
  • Illinois:
    Exemption threshold $4 million
  • Maine:
    Exemption threshold $5.6 million
  • Massachusetts:
    Exemption threshold $1 million
  • Minnesota:
    Exemption threshold $3 million
  • New York:
    Exemption threshold $5.740 million
  • Oregon:
    Exemption threshold $1 million
  • Rhode Island:
    Exemption threshold $1.56 million
  • Vermont:
    Exemption threshold $2.75 million
  • Washington:
    Exemption threshold $2.193 million
Inheritance taxes are levied on the person receiving the property. The tax rates can vary depending on the relationship such as spouse, friend, sibling, charitable entity, etc.

The following 5 states collect inheritance taxes:
  • Iowa:
    Exemption threshold $0.
    Top tax rate 15%
  • Kentucky:
    Exemption threshold varies from $500 to no tax levied.
    Top tax rate 16%
  • Nebraska:
    Exemption threshold $10,000.
    Top tax rate 18%
  • New Jersey:
    Exemption threshold $0.
    Top tax rate 16%
  • Pennsylvania:
    Exemption threshold $0
    Top tax rate 15%
One state collects both an estate tax and an inheritance tax.
  • Maryland estate tax:
    Exemption threshold $5 million
  • Maryland inheritance tax:
    Exemption threshold $0.
    Top tax rate 10%
Thirty-three states collect no estate or inheritance taxes. In those states, only the federal government levies taxes on estates worth more than $11,580,000.

We invite corrections from anyone with professional or legal credentials.

Contact us at: [email protected]
We strive to provide accurate information.
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Your long-suffering accountant.