Glossary

BENEFICIARY: The person (or legal entity) who will receive the benefit from a trust according to the terms of the document. Benefits may be awarded both during the life and after the death of the Trustor.

BUSINESS TRUST: An unincorporated type of business organization which is created by a legal document, where investors get a certificate of beneficial interest. The trust does not get a state issued charter giving it legal recognition, however, its protections are similar to that of a corporation in most states.

C-CORP: Required to file a tax return each year. Substantial tax advantages with medical, dental, insurance, meals, lodging, etc. Must complete meetings, minutes, and resolutions.

C-CORPORATION (C-CORP): Any Corporation that is taxed separately from its owners. Most major corporations are treated a C-Corps for U.S. federal income tax purposes. Many small businesses also choose to be taxed as C-Corps to take advantage of the tax deductions, corporate tax rates, and fiscal year planning strategies that are available. For-profit corporations are automatically classified as a C-Corp unless the corporation elects to be taxed as an S-Corp. C-Corps are required to file an annual 1120 corporate tax return and have the potential of creating “double taxation” for its owners if profits are left in the business.

CERTIFICATE OF TRUST: A condensed version of the living Trust that verifies the trust’s existence and the powers given to the Trustees. Often given to financial institutions to provide the relevant information needed to create a bank account or transfer real estate, yet maintaining privacy for special provisions within the trust.

CHARGING ORDER PROTECTION: A lien placed against a member’s interest in an LLC or Limited Partnership enabling a judgment creditor to garnish distributions allotted to that member. A charging order does not allow the creditor to take the entity’s assets, income, or distributions assigned to other members. Currently, only 5 states have statutes allowing charging order protection for Single-Member LLC’s.

CHARITABLE REMAINDER TRUST (CRT): A tax-exempt, Irrevocable Trust was created by Congress in 1969 to benefit charitable organizations while offering important tax consideration to those who create them. This trust pays the beneficiaries for a certain amount of time and then donates the remainder of the assets to a recognized charitable organization, usually after the death of the Grantor(s). When properly created and maintained, a CRT can be a great tool for avoiding capital gains taxes, providing a reliable income stream, and reducing estate taxes while benefiting worthwhile charitable organizations. Unlike most Irrevocable Trusts, IRS regulations allow the Grantor to also be the Trustee and the Income Beneficiary of the trust.

CHILDREN’S TRUST: An irrevocable trust was created for the benefit of children. This permits the grantor to benefit up to the gift tax exclusion each year, potentially reducing the grantor’s estate by transferring assets for the benefit of a child. A separate trust must be established for each child.

CONTINGENT BENEFICIARY: This is the “back-up” beneficiary, the person or organization was chosen by the trustor, who will receive distributions or benefit from the trust if the primary beneficiary dies, can’t be found, or chooses not to receive them.

COPYRIGHT: A legal way to protect authorship works of Intellectual Property in a tangible form. It needs to be an “original work of authorship” created by a human showing some degree of creativity, such as: architecture, music, books, movies, photos, dramatic works, computer programs, etc. It gives the right to reproduce the work, make derivative works, distribute, display or perform the works in public.

CORPORATE BY-LAWS: A legal document showing the set of rules by which Corporation operations are run. It is created at the time of entity created by the board of directors and may be amended during the life of the Corporation. It is a contract between the Corporation and its shareholders. It is part of the corporate formalities.

CORPORATE FORMALITIES: The steps and precautions that businesses must take to ensure that the corporation remains legally distinct from its owners. Failure to keep up with the corporate formalities can result in the Corporate Veil being pierced and the personal assets of the owners are exposed to the debts and obligations of the business. Most all businesses require a separate bank account, distinct accounting records, and an annual meeting with written minutes. LLCs and Limited Partnerships require written Operating Agreements or Limited Partnerships Agreements and may require an annual filing fee with the state. Businesses taxed as S-Corps or C-Corps require annual federal tax returns. And Corporations require written by-laws, stock ledgers, board of director’s meetings, shareholders' meetings, and issuing stock certificates to the shareholders.

CORPORATE RESOLUTIONS: Legal documents that detail the major decisions and binding actions by the corporation’s board of directors. Resolutions are an important part of a company’s corporate formalities. They are considered internal documents and are not a matter of public record.

CORPORATE VEIL PROTECTION – CORPORATE VEIL PROTECTIONCORPORATE VEIL PROTECTION SERIES LLC: An LLC that functions like a corporation with various solely-owned subsidiaries with each activity or asset being protected from the risk of liability of the other(s). The cost reduction of the initial setup and maintenance can be a major benefit of a Series LLC because only one LLC needs to be filed with the state and typically only one tax return is required. Caution should be given to holding assets in states that do not have Series LLC statutes, in co-mingling funds between cells, and relying too much on Series LLC protection until more court experience is available.

CORPORATION: A company or group of people authorized by the state to act as an independent legal entity, separate and distinct from its owners for the purpose of conducting business. It can therefore enjoy most rights, privileges, and responsibilities of an individual such as entering contracts, borrowing or lending money, owning assets, hiring employees, suing and filing lawsuits, and paying taxes. In 1886, the U.S. Supreme Court held that a corporation was a person for purposes of receiving protections granted by the Constitution. A corporation can be a great tool for conducting business while shielding the owners from personal liability and claiming tax deductions that are not available to individual taxpayers. Corporations are owned by shareholders, directors set the corporate policies and guidelines, and officers run the daily operations. All corporations require Corporate Formalities to be kept for their shareholders to have strong Corporate Veil Protection. For tax purposes, corporations can elect to be taxed as C-Corporations, S-Corporations, or Non-Profit Corporations, each having their own unique set of tax benefits and regulations. Professional Corporations limit the Corporate Veil Protection for professionals who wish to incorporate.

DAMAGES: Compensation that the law awards to someone who has been injured or suffers a loss because of the action of another.

DANGEROUS ASSETS: Assets owned within a business entity that has inherent liability and could potentially create a lawsuit. Assets such as rental real estate, airplanes, automobiles, boats, and heavy equipment are considered to be dangerous assets. A fundamental principle of asset protection is to not combine safe assets with dangerous assets in the same business entity.

DATA: A fact or facts from which conclusions are drawn; information, collected in order to reach a conclusion.

DEAL: A transaction between two or more people; a business arrangement to attain certain desired results.

DEFEND: To attempt to defeat a claim or charge; to represent a defendant.

DEFENDANT: The party who refutes a claim made by a plaintiff; the person accused in a lawsuit.

DEFENSE: The denial of charges, brought by a plaintiff against a defendant; an answer to a complaint.

DELAWARE CORP: Delaware state statutes are superb at protecting shareholders from the debts and obligations of the company. Most Fortune 500 companies in the United States are filed initially in Delaware. There is no state income tax for Delaware corporations that conduct business out of state, no state sales tax on royalty payments, and sell of stock owned by non-resident aliens is not subject to state taxes.

DELIQUENT: An individual who does not carry out that which is expected of him or that which he has promised to do; a debt that is due and has not been paid; neglectful of duty.

DEMAND: A legal obligation; a claim; to claim as one's right; to insist upon; a positive request that presupposes that there is no defense to the claim or right.

DENIAL: A defense against a charge; a contradiction; a traverse. (When a defendant answers a plaintiff's charges, he or she often denies them. Even if it is stated that the defendant has insufficient information to respond to a complaint, this will constitute a denial.)

DISCONTINUANCE: The failure of a plaintiff to continue to press the suit. As a consequence, the case is dismissed.

DISCREPANCY: An inconsistency between the contentions of a party to a suit and the actual facts; a variance; a lack of conformity.

DISQUALIFY: To render unfit; to make someone ineligible; to revoke qualification. A judge may disqualify himself from trying a case because he may have an interest in its outcome, or he may believe that he cannot be completely impartial.

DRAFT: A written instruction from one person to another, ordering the payment of a specified sum of money to a third person on a specified date in the future. Also known as a bill of exchange.

DURESS: Undue pressure by one person against another in order to get him to do something he does not want to do. This pressure might take the form of threats of bodily harm, or of exposure of information that the threatened person wants to keep secret, etcetera.

EXECUTOR: A person (or a firm) chosen to execute the wishes and terms of the Last Will & Testament. The Executor is generally chosen by the will’s creator, although he or she may be appointed by a probate judge if the will fails to select a person willing and able to fulfill the duties.

FAMILY LIMITED PARTNERSHIP (FLP): An FLP is basically a LP owned by family members and is traditionally used to protect family-owned assets. State filing requirements and IRS regulations are identical for LPs and FLPs, but states do not have separate certificates of formation for FLPs. Applicants can use a standard Certificate of Limited Partnership found on the state’s website. The internal formation document known as the Partnership Agreement and the EIN Application (IRS SS-4 Form) identify each of the family member/owners and their percentage of ownership. Like the LP, a separate EIN and tax return should be file annually for each FLP.

FEDERAL TAX ID: This is a tax identification number for businesses and certain trusts, similar to a Social Security Number for an individual. It is also known as an Employee Identification Number (or EIN). A business does not need to have employees to apply for an EIN. The IRS issues EINs at no charge by completing an application known as an SS-4 Form or by applying online at www.irs.gov.

FRAUDULENT CONVEYANCE: The unfair or illegal transfer of property to someone else. A transfer or conveyance of property which is made with intent to swindle, hinder, or delay a creditor, or to put such property beyond the creditors reach, without receiving a reasonably equivalent value in exchange for the transfer of obligation. Fraudulent Conveyances are determined by the intent of the person making the transfer. Usually, fraudulent conveyances are dealt with as civil actions rather than criminal actions.

FUNDING A TRUST: “Funding” refers to the process of effectively transferring assets out of your name and into a legal entity. The term “funding a trust” is simply the process of conveying your assets into a trust. It may require changes in real estate deeds, letters to banks, or written inventory lists of assets being assigned.

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HOLDING COMPANY: An entity created for the purpose of holding assets or the ownership interests in other companies but does not operate a business or produce goods or services for itself. Holding Companies are often LLCs, Corporations, IRAs, or other qualified retirement accounts.

IRREVOCABLE TRUST: A trust that cannot be changed or revoked once it has been created and funded. Irrevocable trusts are typically used for life insurance policies or generational-type assets that are not susceptible to changes in individual beneficiaries and catastrophic life events. These trusts are useful in avoiding estate taxes and are generally exempt from creditor claims. Annual tax returns are required for irrevocable trusts and income that is not distributed will be taxed under IRS trust rules. It is always recommended that people consult a professional before entering this type of trust.

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LAND TRUST: A Land Trust is a trust in which real estate is conveyed to a trustee under an agreement that preserves full management and control of the property as well as providing anonymity for landowners. Because the Land Trust does not typically have good asset protection, the beneficial interest is often conveyed to an LLC or IRA with stronger asset protection. Land Trusts are generally revocable and may be changed or terminated and the owner is assigned to other entities or individuals without changing the deed or reassessing the property taxes. Land Trust does not require an EIN or annual tax return.

LIMITED LIABILITY COMPANY (LLC): A business structure whereby the owners are not generally held liable for the company's debts and liabilities. LLCs are hybrid entities, combining the tax benefits and Corporate Veil Protection of a Corporation with the Charging Order Protection of a Limited Partnership. LLCs generally have less Corporate Formalities than a traditional Corporations.

LIMITED PARTNERSHIP (FAMILY LIMITED PARTNERSHIP): When two or more partners go into business together. Pass-through entity. Contains General Partners who has the liability and Limited Partners have limited liability. Contains charging order protections and can be good for protecting assets. Click HERE for more details. 

LIMITED PARTNERSHIP (LP): A legal entity created by a state statute made up of two or more partners. Parties to the partnership include General Partners who oversee the affairs of the business and Limited Partners passively invest but do not participate in the operations and management of the business. General Partners have unlimited liability for the debts and obligations of the business, while a Limited Partner’s risk is restricted simply to the loss of the investment. State laws governing taxation, formation requirements, Charging Order Protection, and maintenance fees vary greatly. Newly formed LPs should apply for a federal EIN and will generally be taxed as a pass-through entity, requiring a 1065 Partnership tax return to be filed annually.

LIVING TRUST: To retain use, enjoyment, and control of assets during your life with directions as to who will enjoy the property both before and after your death. The principal purpose is to avoid probate and decrease estate taxes with privacy.

LLC – LIMITED LIABILITY COMPANY: a business structure in the United States whereby the owners are not personally liable for the company's debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. For complete Asset Protection & Tax Advantages.

MANAGER-MANAGED LLC: This type of LLC has a manager making the decisions, with the members acting as passive investors. The members appoint the manager.

MEMBER-MANAGED LLC: This type of LLC is one in which all members can make binding decisions for the company.

MULTI-MEMBER LLC (MMLLC): This LLC has more than one member and can be either a Manager-Managed or Member-Managed. The IRS will tax an MMLLC as a Partnership unless an IRS 2553 (Election to tax as an S-Corp) or an 8832 (Election to tax as a C-Corp) is filed in a timely manner.

NEVADA CORP: A corporation filed in Nevada, often considered when stronger Corporate Veil protection is appealing for a company’s officers and directors and anonymity is attractive for its owners. Nevada is currently the only state offering Charging Order Protection for corporate stockholders. Nevada charges no personal or business income taxes.

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PRENUPTIAL AGREEMENT: A contract written and entered into before a marriage or civil union enabling the selection and control of assets and many legal rights acquired upon marriage and what happens in the event of divorce, separation, or death. It is not part of a Revocable Living Trust; however, it can provide excellent protective measures for business owners, real estate investors, and persons wanting special protection for gifts and inheritances.

PROFESSIONAL CORPORATION (PC): A corporation is organized by one or more licensed individuals (such as a doctor, lawyer, engineer, architect, etc.) especially for the purpose of providing professional services and obtaining tax advantages. Unlike a traditional corporation, operation as a PC does not insulate a professional for personal liability for her own negligence or malpractice; however, it can still afford strong Corporate Veil Protection for cases involving office accidents, discrimination, wrongful termination, etc.

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REAL ESTATE TRANSFER TAX: A tax applied to any transfer of ownership of a piece of real estate or other property, levied by the state, local jurisdiction, or sometimes both. This is a one-time fee and varies by location.

REVOCABLE LIVING TRUST (RLT): A written document that determines how your assets will be allocated after you die. The principal purposes of the trust are to avoid probate, decrease estate taxes, and provide for a harmonious transfer of assets in a private manner. The trust enables you to retain the use, enjoyment, and control of the assets during your lifetime, even though you have given up the legal ownership of the assets to the trust. Commonly called an Intervivos Trust, an RLT will provide little to no income tax or asset protection benefits until the death of the Trustor(s). An RLT can be changed, modified, altered, or completely revoked, at any time until incapacitation or death. Unlike a Last Will and Testament which is directions to a probate court, a fully funded RLT is designed to avoid the expense, paperwork, time delays, attorney fees, and frustrations of probate.

S CORP: flow-through entity for federal tax purposes. Owners are able to reduce their self-employment taxes after taking a reasonable wage or salary by taking distributions that are considered “passive income” and are not subject to self-employment taxes.

S-CORPORATION (S-CORP OR S SUBCHAPTER): A type of Corporation that meets specific IRS requirements and qualifies for special treatment under the U.S. tax code. S-Corps pass most taxable events (such as profits, losses, capital gains, depreciation, etc.) directly to the owners. The principal advantages small business owners see in electing S-Corp status is the potential reduction in self-employment taxes and the tax losses that can pass through to their individual tax returns during years when the business does not produce a profit. To qualify for S-Corp status, the corporation must be filed domestically, have no more than 100 shareholders, and have only one class of stock. Certain financial institutions, insurance companies, and domestic international sales corporations are ineligible for S-Corporation status. To be taxed as an S-Corp, the corporation must submit Form 2553 (Election by a Small Business Corporation) signed by all the shareholders. S-Corps are required to file an annual 1120-S form and issue K-1 statements to its owners.

SAFE ASSETS: Assets with a low probability of creating a lawsuit such as cash accounts, brokerage accounts, artwork, investment accounts, and precious metals.

SERIES LLC: One Series can be set up and create several other series to hold multiple assets. In theory this is great because it will save you on filing fees, entity fees, etc. However, be cautious when using this tool as many states do not recognize a Series LLC and therefore have no protections.

SINGLE-MEMBER LLC (SMLLC): A Limited Liability Company containing only one owner (or member). Touted as a simple way to operate a business because it requires fewer Corporate Formalities than a traditional Corporation. A SMLLC still requires a separate set of books and accounting records to maintain strong Corporate Veil protection. A SMLLC lacks strong Charging Order Protection in most states and is therefore not considered to be a strong asset-protection tool if the LLC’s owner issued. A SMLLC will be treated by the IRS as a Disregarded Entity unless an election to tax it as a C or S Corporation is filed.

SMLLC: Single Member LLC – LLC containing only one “single” member and could be considered a disregarded entity or pass through for tax purposes depending on the state. Disregarded entities could be considered poor asset protection tools and should be used with caution.

SPECIAL NEEDS TRUST: This is a type of trust that enables beneficiaries with special needs to continue receiving some type of help, generally additional income, while preventing the beneficiaries from losing their social security or Medicaid benefits. In this type of trust, the dispersed funds can only be spent on certain expenses such as medical expenses and personal care attendants.

TENANCY BY THE ENTIRETIES: A form of ownership available to married couples in 23 states. The general rule is that if a creditor gets a judgment against one of the individuals, that creditor may not attach assets in because each spouse owns an indivisible interest in the asset. The protection however fails in the event of a divorce, the death of one of the spouses, or if both husband and wife are named in the lawsuit.

TRUSTEE: A person (or a firm) is responsible for running the trust and managing the trust’s assets. Trustees have a fiduciary responsibility to maximize the value of the trust and to follow the written intent and directions of the Grantor.

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WARRANTY DEED: A deed that certifies that a property has a clear title and that the grantor has the full right to sell. The warranty Deed proves ownership and comforts and protects the buyer against any other hidden or undisclosed liens or title defects.

WYOMING CORP: A Wyoming corporation is often considered by business owners seeking strong Corporate Veil protection, anonymity for its owners, and low filing and maintenance fees. Wyoming was the first state in the nation to offer Charging Order Protection for Single-Member LLCs. Wyoming has no state income taxes, minimal paperwork, and most small businesses are tax exempt.

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