Trusts as a wealth building and wealth preservation tool have been around for centuries. Every specific trust has a specific purpose for why it is set up and how it is utilized. There is one that is designed for high income business owners to be able to put away more money for retirement than they possibly could with a traditional retirement plan.This trust will also allow the business owner to do this on a tax deductible basis.

This also allows the business owner to legally “discriminate” against their current employees or co owners so if they choose; the owner can be the only one who participates in the plan. This is very different from traditional retirement accounts where most full time employees must be given the opportunity to participate in the retirement plan.

The name of this trust is a “Restricted Property Trust” and is a very powerful tool for the right business owner.It basically works like this:

  • A successful business owner is allowed to fund from $50,000 (minimum) to millions of dollars per year for at least 5 years into a restricted property trust. We will use $100,000 contributions for our examples
  • Most of this contribution will be tax deductible to the business owner because of the nature of the Restricted Property Trust
  • That contribution will be used to fund a Whole life insurance policy creating cash value and an instant death benefit for the business owner’s estate. If the business owner should die during the initial 5 year period (or subsequent 5 year blocks of time in which the trust operates 10,15, or 20 years) the death benefit finishes off the funding of the trust commitment and the balance of the death benefitgoes to the business owners family
  • The business owner makes a firm commitment to fund the trust for those 5 years with $100,000 per year and if the business owner fails to make that contribution they forfeit all previous contributions to a charity. This creates a chance of loss necessary to make most of these contributions tax deductible.Needless to say the business owner who sets this up is confident in their income for the trust period and/or they have significant assets in other places they could easily draw on to make these contributions.
  • Depending on the situation about $70,000 of the $100,000 contribution will be tax deductible every year the contribution is made into the trust. Over 10 years this would create $700,000 worth of tax deductions directly off of your businesses income putting hundreds of thousands of dollars in your bank account (depending on your effective tax rate)
  • Also at the end of the 10 years (in this example) you will have more money in your plan in the form of cash value than you put into the plan. Let’s assume you have put in $1,000,000 into the plan over 10 years, you now might have $1,200,000 in cash value inside the plan and the life insurance policy.The trust is collapsed and you now own the life policy personally along with all the cash and death benefit.You have also pocketed hundreds of thousands in dollars of cash that you would have paid to Uncle Sam without this unique and powerful structure.
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