Common Law vs Statutory Law and Trusts
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Questions and Answers

What is a primary purpose of reporting wills filed for probate in small community newspapers?

  • To inform the public about legal proceedings
  • To speculate on property values
  • To provide insights into wealth distributions (correct)
  • To encourage community debates on inheritance

    • How does a Pure Trust Organization differ from a testamentary trust?

  • It is limited to immediate family members only
  • It is created only after the death of the creator
  • It has stricter regulations governing its terms
  • It can be established while the creator is alive (correct)

    • What is meant by the phrase 'a man's house is his castle' in the context of pure trust organizations?

  • It suggests that all homes are equally valuable
  • It refers to physical property ownership rights
  • It implies that trust organizations can own real estate
  • It highlights the need for personal privacy and autonomy (correct)

    • Who can appoint trustees in a Pure Trust Organization?

    <p>Previous trustees and the creator</p> Signup and view all the answers

    What benefit does a Pure Trust Organization provide regarding property ownership?

    <p>It allows property to benefit beneficiaries indefinitely</p> Signup and view all the answers

    What is one potential misconception about who can be a trustee in a Pure Trust Organization?

    <p>Family members can serve as trustees and beneficiaries</p> Signup and view all the answers

    What implication does the phrase 'now and forever trust organization' suggest about a Pure Trust Organization?

    <p>It continues to exist beyond the creator's lifetime</p> Signup and view all the answers

    What role does a public court play in the context of wills and trusts?

    <p>It serves as the filing location for probate-related documents</p> Signup and view all the answers

    What was the outcome of the case Anderson, 8 T.C. 706(A) (1947) regarding taxable gifts?

    <p>The transfers were not considered taxable gifts.</p> Signup and view all the answers

    In Scanlon v. Commissioner, under what condition was no gift tax applied?

    <p>The transfer was made to a disconnected and isolated entity.</p> Signup and view all the answers

    What does federal estate tax represent according to Old Ken Bank & Trust Company v. U.S.?

    <p>An excise on the transfer of interests in property upon death.</p> Signup and view all the answers

    According to Second National Bank of New Haven v. U.S., what is the rationale behind federal estate tax?

    <p>It is a tax on the transfer of interests at the time of death.</p> Signup and view all the answers

    What measure is used to determine the estate tax as stated in Igleheart v. Commissioner?

    <p>The valuation of property owned by the deceased at the time of death.</p> Signup and view all the answers

    How is the transfer tax determined according to MaCaughn v. Fidelity Trust Company?

    <p>By the value of property transferred at the time of decedent's death.</p> Signup and view all the answers

    What legal nature is described in Shaw vs. Paine regarding a Trust?

    <p>A Trust is a lawful, irrevocable, separate legal entity.</p> Signup and view all the answers

    What is the significance of Treasury Department regulations in the context of taxation according to Hellmich v. Hellman?

    <p>They are not conclusive, and doubts are resolved in favor of taxpayers.</p> Signup and view all the answers

    What was the initial cost paid by Hunt for setting up the first Pure Trust Organization?

    <p>$75,000</p> Signup and view all the answers

    Which trust organization is reported to own a large percentage of Hunt Oil Company?

    <p>Ruth Ray Hunt Trust Estate</p> Signup and view all the answers

    How much is the Caroline Hunt Sands Trust Estate estimated to be worth?

    <p>$100 million</p> Signup and view all the answers

    What property did the Ray Lee Hunt Trust Estate purchase?

    <p>Jefferson-Dallas Hotel</p> Signup and view all the answers

    What tax deduction was related to the Jefferson-Dallas Hotel before the purchase was revealed?

    <p>$21,491</p> Signup and view all the answers

    Which trust estate is mentioned as being involved with exploratory oil drilling efforts?

    <p>Hassie Hunt Trust</p> Signup and view all the answers

    What is suggested about the number of Hunt family trust organizations currently in existence?

    <p>As many as 200</p> Signup and view all the answers

    What ensures that the Hunt family estates do not drastically diminish over generations?

    <p>Use of Pure Trust Organizations</p> Signup and view all the answers

    What was one consequence of the common law judges' interpretation of the Statute of Uses?

    <p>Most trusts remained enforced.</p> Signup and view all the answers

    Which of the following best describes the overall success of the Statute of Uses?

    <p>It had minimal impact on trust organizations.</p> Signup and view all the answers

    What is one of the primary advantages of ancient trust organizations?

    <p>Privacy under a system requiring disclosure.</p> Signup and view all the answers

    What defines an express trust?

    <p>A trust created in express terms, usually in writing.</p> Signup and view all the answers

    What qualification must an express trust meet?

    <p>It must be an active trust managed by the trustee.</p> Signup and view all the answers

    What problem did the Statute of Uses specifically intend to address?

    <p>The loss of revenue for lords.</p> Signup and view all the answers

    How did the trust organizations travel to America?

    <p>They accompanied the English Colonies.</p> Signup and view all the answers

    What motivated the creation of trust organizations historically?

    <p>To preserve privacy and avoid burdens.</p> Signup and view all the answers

    What is the primary goal of statutory law?

    <p>The common good</p> Signup and view all the answers

    How is common law primarily characterized?

    <p>Rooted in moral understandings of right and wrong</p> Signup and view all the answers

    Which statement is true about common and statutory law?

    <p>Common law and statutory law have different underlying beliefs.</p> Signup and view all the answers

    What concept does common law primarily rely on when limiting liability?

    <p>Common sense</p> Signup and view all the answers

    Why have many lawyers focused more on statutory law than common law?

    <p>Statutes are constantly evolving and complex.</p> Signup and view all the answers

    What is a significant historical fact about common law courses in law schools?

    <p>They were largely removed from curricula in the 1920s and 1930s.</p> Signup and view all the answers

    What aspect differentiates statutory trusts from common law trusts?

    <p>Statutory trusts are created through statutes with specific legal requirements.</p> Signup and view all the answers

    Which of the following best summarizes the difference between legality and morality in the context of law?

    <p>Legality focuses on what is legal and illegal, while morality deals with right and wrong.</p> Signup and view all the answers

    Which of the following statements about a Pure Trust is accurate?

    <p>A Pure Trust is created through a contract.</p> Signup and view all the answers

    A business trust is lawful in states that do not permit any trusts to be created.

    <p>False</p> Signup and view all the answers

    What legal protection does a trust organization receive under the U.S. Constitution?

    <p>Right of contract</p> Signup and view all the answers

    A common-law trust is sometimes referred to as a __________ trust.

    <p>common-law</p> Signup and view all the answers

    Match the following cases with their key points regarding trust organizations:

    <p>Folsom v. N.E. = Common-law trust basis in contract Goldwater v. Qitmun = Lawfulness of business trust Navarro Savings Assn. v. Lee = Citizenship of business trusts Elliot v. Freeman = Pure Trust not subject to legislative control</p> Signup and view all the answers

    What is one key misconception some attorneys have about the Pure Trust Organization?

    <p>It is considered illegal and invalid.</p> Signup and view all the answers

    Common law principles are not relevant in modern legal practice.

    <p>False</p> Signup and view all the answers

    Which type of trust is used for probate avoidance?

    <p>Irrevocable trust</p> Signup and view all the answers

    The Pure Trust Organization has been specifically mentioned in cases from the _____ Court.

    <p>Supreme</p> Signup and view all the answers

    Match the following court cases with their references to trusts:

    <p>Harwood vs. Tracy = Trust for probate avoidance Baker vs. Stern = Validity of pure trusts Burnett vs. Smith = Legal entity for trust estates</p> Signup and view all the answers

    What must attorneys often resort to in order to learn about common law principles?

    <p>Self-education</p> Signup and view all the answers

    Most attorneys have a strong understanding of common law trusts.

    <p>False</p> Signup and view all the answers

    What is a common limitation of testamentary and living trusts?

    <p>They have many limitations.</p> Signup and view all the answers

    What historical period saw the emergence of the first Pure Trust Organizations?

    <p>Roman Empire</p> Signup and view all the answers

    The common law adopted by the United States includes principles of equity from the courts of chancery in England.

    <p>True</p> Signup and view all the answers

    What was the preferred method of establishing ownership and management during the Middle Ages in Europe?

    <p>Pure Trust Organizations</p> Signup and view all the answers

    The legal receiver in ancient German law was called the _____.

    <p>salman</p> Signup and view all the answers

    Match the following terms with their descriptions:

    <p>Equity = Principles used to enforce fairness in law Chancery = Court system that handled equity matters Pure Trust Organization = Entity for estate planning without an attorney Common Law = Law developed based on court decisions and customs</p> Signup and view all the answers

    Which of the following represents a potential benefit of Pure Trust Organizations?

    <p>Decentralized estate planning</p> Signup and view all the answers

    A common misconception is that Pure Trust Organizations are a new legal concept in the United States.

    <p>False</p> Signup and view all the answers

    Why might some attorneys resist learning about Pure Trust Organizations?

    <p>Financial interests</p> Signup and view all the answers

    The ___________ court was responsible for enforcing principles of equity in England.

    <p>chancery</p> Signup and view all the answers

    What is a key feature of a business trust?

    <p>It offers a shield of protection from personal liabilities.</p> Signup and view all the answers

    A Pure Trust organization provides privacy regarding the contents of a will after the owner's death.

    <p>False</p> Signup and view all the answers

    Who acts on behalf of shareholders in a business trust?

    <p>Trustees</p> Signup and view all the answers

    The trustees of a business trust are comparable to the __________ of a corporation.

    <p>board of directors</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Business Trust = A special form of trust organization used for managing investor assets Trustees = Individuals designated to manage and act on behalf of a trust Shareholders = Individuals who hold rights to a share of the trust's assets Pure Trust = A trust that focuses on privacy and management of family affairs</p> Signup and view all the answers

    Why might someone choose to use a Pure Trust organization?

    <p>To maintain privacy about their estate.</p> Signup and view all the answers

    Trustees of a business trust are equivalent to absolute owners of the trust assets.

    <p>True</p> Signup and view all the answers

    What do trustees represent in a business trust?

    <p>The interests of the shareholders</p> Signup and view all the answers

    A man can keep the contents of his will secret while he is __________.

    <p>alive</p> Signup and view all the answers

    What is a common misconception about the management of business trusts?

    <p>Trustees function independently from shareholders.</p> Signup and view all the answers

    What significant benefit do Pure Trust Organizations provide related to estates?

    <p>They bypass the probate process.</p> Signup and view all the answers

    The first Pure Trust Organization in America was created after the adoption of the Constitution.

    <p>False</p> Signup and view all the answers

    Who was the attorney that drafted the first Pure Trust Organization in America?

    <p>Patrick Henry</p> Signup and view all the answers

    Pure Trust Organizations aim to keep family estates out of the hands of the __________.

    <p>tax collectors</p> Signup and view all the answers

    Match the following individuals with their contributions to Pure Trust Organizations:

    <p>Patrick Henry = Drafted first Pure Trust Organization in America William Bingham = Started a large Pure Trust Organization Robert Morris = Governor for whom the first trust was created Anderson = Tax case related to gifts</p> Signup and view all the answers

    What happened to the Pure Trust Organization founded by William Bingham in 1964?

    <p>It was terminated due to the multiplication of beneficiaries.</p> Signup and view all the answers

    The rule against perpetuity applied to the Pure Trust Organization established by Bingham.

    <p>False</p> Signup and view all the answers

    What was the main property type owned by Bingham's Pure Trust Organization?

    <p>Land</p> Signup and view all the answers

    Pure Trust Organizations manage and distribute income to __________ after death.

    <p>beneficiaries</p> Signup and view all the answers

    Which of the following describes the historical context for the creation of Pure Trust Organizations?

    <p>Developed from English customs to preserve family estates.</p> Signup and view all the answers

    Which of the following families is known for maintaining several Pure Trust Organizations primarily for tax shelter purposes?

    <p>The Kennedy family</p> Signup and view all the answers

    The Kennedy family used their Pure Trust Organization to increase transparency with authorities.

    <p>False</p> Signup and view all the answers

    What is one key financial benefit of using a Pure Trust Organization?

    <p>Minimizing inheritance taxes</p> Signup and view all the answers

    William Waldorf Astor created a trust organization estate worth __________ dollars to save on inheritance taxes.

    <p>$50,000,000</p> Signup and view all the answers

    Match the following individuals with their associated trust organizations or activities:

    <p>John D. Rockefeller = 70 trust organizations to minimize taxes Joseph Kennedy = Ownership of Chicago Merchandise Mart William Waldorf Astor = $50 million estate trust Nelson A. Rockefeller = Trust organizations for grandchildren</p> Signup and view all the answers

    What percentage of an estate may be taken by taxes if the total estate is valued above $600,000?

    <p>30-50%</p> Signup and view all the answers

    A common law business trust can help avoid unnecessary legal fees and probate costs.

    <p>True</p> Signup and view all the answers

    What is another term for the Common Law Business Trust?

    <p>Pure Trust Organization</p> Signup and view all the answers

    To avoid probate costs, one can use the __________ to manage their assets.

    <p>Common Law Business Trust</p> Signup and view all the answers

    Match the following types of fees with their corresponding descriptors:

    <p>Probate costs = Costs incurred during the legal process of settling a deceased person's estate Inheritance taxes = Taxes levied on the beneficiaries of a deceased person's estate Estate taxes = Taxes imposed on the estate itself before distribution to heirs Executor fees = Fees paid to the person responsible for administering the estate</p> Signup and view all the answers

    What can happen to an estate without proper estate planning?

    <p>It may incur high estate taxes and legal fees.</p> Signup and view all the answers

    The Pure Trust Organization is a well-known and commonly used financial instrument.

    <p>False</p> Signup and view all the answers

    What is the main benefit of using a Common Law Business Trust?

    <p>To avoid probate and tax costs associated with asset transfer.</p> Signup and view all the answers

    What happens to a business trust when one of its trustees dies?

    <p>The trust continues without interruption.</p> Signup and view all the answers

    Business trusts are classified as taxpayers under the Internal Revenue Code.

    <p>False</p> Signup and view all the answers

    What is one major benefit of a business trust regarding probate costs?

    <p>No probate process or probate costs are incurred.</p> Signup and view all the answers

    A business trust is a separate entity that continues its operations ______, even if a trustee dies.

    <p>uninterrupted</p> Signup and view all the answers

    Why were business trusts unable to obtain an EIN over the Tele-TIN phone number?

    <p>They were not considered taxpayers.</p> Signup and view all the answers

    The death of a single trustee will always disrupt the business activities of a trust.

    <p>False</p> Signup and view all the answers

    Match the following terms related to business trusts with their definitions:

    <p>Business Trust = An arrangement where legal title to property is held for beneficiaries EIN = Employer Identification Number required for tax purposes Trustee = An individual or entity that manages assets on behalf of beneficiaries Probate = The legal process of settling a deceased person's estate</p> Signup and view all the answers

    What significant financial burden can often arise from the death of a primary breadwinner in a family business?

    <p>Estate taxes</p> Signup and view all the answers

    According to the Internal Revenue Regulations, business trusts are not simply arrangements to protect or conserve property for the _______.

    <p>beneficiaries</p> Signup and view all the answers

    What is one major advantage of having multiple trustees in a business trust?

    <p>It reduces the impact of any one trustee's death.</p> Signup and view all the answers

    What is the primary benefit of a Pure Trust Organization regarding taxation?

    <p>It is not affected by estate and inheritance taxes.</p> Signup and view all the answers

    The Mesabi Trust serves as a model example of a Pure Trust Organization.

    <p>True</p> Signup and view all the answers

    Name one significant event that took place regarding the Mesabi Trust.

    <p>Commissioner of the Internal Revenue ruled it would not be taxed as a corporation.</p> Signup and view all the answers

    The Pure Trust Organization owned the reserves of the famous _____ deposits in Minnesota.

    <p>iron</p> Signup and view all the answers

    Match the following individuals with their roles in the Pure Trust Organization.

    <p>Mr. Arnold Hoffman = President of Mesabi Iron Company Edward H. Hines = Established family trust organization Ralph J. Hines = Head trustee after Edward H. Hines</p> Signup and view all the answers

    What legal issue did the Hines family face regarding their Pure Trust Organization?

    <p>Claims of erroneous management from family members.</p> Signup and view all the answers

    The Hine family trust was disrupted by estate and inheritance taxes after the deaths of trustees.

    <p>False</p> Signup and view all the answers

    What did the court rule regarding the administration of the Hines family's Pure Trust Organization?

    <p>It was a valid and legal arrangement.</p> Signup and view all the answers

    The trustee's management of the Pure Trust Organization allowed for the _____ of assets without probate disruption.

    <p>preservation</p> Signup and view all the answers

    Which statement best describes the relationship between a Pure Trust Organization and probate procedures?

    <p>It is completely unaffected by probate procedures.</p> Signup and view all the answers

    Which of the following statements best represents the understanding of Pure Trust Organizations in the legal profession?

    <p>Many attorneys are unaware of the existence of Pure Trust Organizations.</p> Signup and view all the answers

    Pure trusts are legally valid business organizations.

    <p>True</p> Signup and view all the answers

    What is a common misconception some attorneys have about Pure Trust Organizations?

    <p>They believe that Pure Trust Organizations are illegal.</p> Signup and view all the answers

    According to legal precedent, a trust is a lawful, irrevocable, separate legal ______.

    <p>entity</p> Signup and view all the answers

    Match the following court cases with their key points regarding trusts:

    <p>Harwood vs. Tracy = Trust as a separate legal entity for probate avoidance Baker vs. Stern = Establishes the legality of pure trusts Burnett vs. Smith = Trusts considered legal entities for various purposes</p> Signup and view all the answers

    What type of trust is often not well understood by many attorneys in practice?

    <p>Pure Trust Organizations</p> Signup and view all the answers

    Common law principles have no relevance in today's legal practice.

    <p>False</p> Signup and view all the answers

    What is one advantage of a Pure Trust Organization over more common types of trusts?

    <p>It avoids many of the limitations found in testamentary and living trusts.</p> Signup and view all the answers

    The phrase 'pure trust' refers to a form of business organization that is specifically mentioned in various ______ cases.

    <p>court</p> Signup and view all the answers

    What trend has been observed regarding the teaching of common law in law schools?

    <p>Many law schools have reduced the emphasis on common law.</p> Signup and view all the answers

    What is one major benefit of using a Common Law Business Trust?

    <p>Avoidance of probate and related taxes</p> Signup and view all the answers

    The Common Law Business Trust is designed to incur additional legal fees during the asset transfer process.

    <p>False</p> Signup and view all the answers

    What is commonly referred to as the Pure Trust Organization?

    <p>Unincorporated Business Trust Organization</p> Signup and view all the answers

    A Common Law Business Trust can help save families from __________ costs after the death of a family member.

    <p>probate</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Common Law Business Trust = A tool to protect assets and minimize taxes Probate = The legal process of administering a deceased person's estate Inheritance Tax = Tax imposed on individuals who inherit assets Executor Fees = Costs associated with managing the estate of a deceased person</p> Signup and view all the answers

    What percentage of an estate may be taken by taxes if the total estate exceeds $600,000?

    <p>30-50%</p> Signup and view all the answers

    The Pure Trust Organization is rarely used for estate planning.

    <p>True</p> Signup and view all the answers

    What adverse impact can arise from the Internal Revenue Service's rulings regarding personal property?

    <p>Loss of value or high tax liabilities</p> Signup and view all the answers

    What is one outcome of the trust organization as stated in Carruthers v. Carruthers?

    <p>It creates a Federal organization.</p> Signup and view all the answers

    A Pure Trust derives its power and privileges from statutory law.

    <p>False</p> Signup and view all the answers

    What determines whether a property exchange is taxable according to Burnet v. Logan?

    <p>The fair market value of the property received.</p> Signup and view all the answers

    Gift tax applies only to transfers by gift with less than full and adequate __________.

    <p>consideration</p> Signup and view all the answers

    Match the following court cases with their key points regarding trust organizations:

    <p>Carruthers v. Carruthers = Trust organization is not under state laws. Crocker v. Malley = Pure Trust derives no power from statutes. Palmer et al. v. Taylor et al. = Trust stock subscription is an investment. Tyson v. Commissioner = Gift tax applies to transfers without adequate consideration.</p> Signup and view all the answers

    What was the primary goal of the Statute of Uses?

    <p>To restrict legal trusts and prevent tax avoidance</p> Signup and view all the answers

    One out of five trusts was found to be illegal according to the common law judges.

    <p>True</p> Signup and view all the answers

    What is the broad definition of a 'trust'?

    <p>A right of property, real or personal, held by one party for the benefit of another.</p> Signup and view all the answers

    The trust organization allowed individuals to avoid some of the burdens of __________ taxes.

    <p>special</p> Signup and view all the answers

    Match the following terms with their descriptions:

    <p>Express Trust = Declared in express terms, usually in writing Active Trust = Trustee has authority to manage and pay income Statute of Uses = Legislation aimed to restrict trusts Court of Chancery = Enforced trusts despite the Statute of Uses</p> Signup and view all the answers

    Which group was left unaffected by the Statute of Uses?

    <p>Trust organizations</p> Signup and view all the answers

    The advantages of ancient trust organizations are no longer applicable today.

    <p>False</p> Signup and view all the answers

    What is a key advantage of trust organizations in relation to property?

    <p>It enables a person to enjoy privacy and transfer property without public disclosure.</p> Signup and view all the answers

    A trust can be created for any purpose which is not __________ or against public policy.

    <p>illegal</p> Signup and view all the answers

    How did the trust organizations travel to America?

    <p>Via immigrant settlers from England</p> Signup and view all the answers

    What is the primary benefit of a Pure Trust Organization?

    <p>Avoiding estate taxes and probate costs</p> Signup and view all the answers

    Pure Trust Organizations were established to eliminate the need for managing family estates.

    <p>False</p> Signup and view all the answers

    Who drafted the first Pure Trust Organization on record in America?

    <p>Patrick Henry</p> Signup and view all the answers

    A Pure Trust Organization helps in keeping estates out of the hands of _____ and tax collectors.

    <p>probate</p> Signup and view all the answers

    Match the following historical figures with their association to Pure Trust Organizations:

    <p>Patrick Henry = Drafted the first Pure Trust Organization in America William Bingham = Established a large estate Pure Trust Organization in 1804 Governor Robert Morris = Beneficiary of the first Pure Trust Organization Church of England = Managed assets without probate costs</p> Signup and view all the answers

    What legal status do trust assets hold under a Pure Trust Organization?

    <p>They bypass probate completely.</p> Signup and view all the answers

    The rule against perpetuity applies to Pure Trust Organizations.

    <p>False</p> Signup and view all the answers

    In which year did William Bingham start a Pure Trust Organization?

    <p>1804</p> Signup and view all the answers

    The income from the sale of properties in a Pure Trust Organization is distributed to the _____ at the time of liquidation.

    <p>beneficiaries</p> Signup and view all the answers

    What was one reason for the termination of the Bingham Pure Trust Organization in 1964?

    <p>Multiplication of beneficiaries</p> Signup and view all the answers

    What is one main benefit of the Pure Trust Organization?

    <p>It protects assets from probate and divorce proceedings.</p> Signup and view all the answers

    A Pure Trust Organization must be registered with federal authorities.

    <p>False</p> Signup and view all the answers

    What must you prepare to form a Pure Trust Organization?

    <p>Contracts, trust organization minutes, and a trust organization indenture.</p> Signup and view all the answers

    The Pure Trust Organization manages assets through its __________.

    <p>trustees</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Common Law = Set of rules based on shared understanding and decency Statutory Law = Law enacted by legislative bodies Pure Trust Organization = An organization that holds assets privately Trustee = Person appointed to manage a trust's assets</p> Signup and view all the answers

    Who can potentially act as trustees in a Pure Trust Organization?

    <p>Family members under certain circumstances</p> Signup and view all the answers

    The assets in a Pure Trust Organization are subject to death taxes after the trustee passes away.

    <p>False</p> Signup and view all the answers

    What types of transactions can a Pure Trust Organization be utilized for?

    <p>Both business and personal transactions.</p> Signup and view all the answers

    The Pure Trust Organization can be used to avoid __________ costs.

    <p>probate</p> Signup and view all the answers

    What is a reason many people may not have heard of the Pure Trust Organization?

    <p>There are multiple reasons for misinformation.</p> Signup and view all the answers

    Study Notes

    Common Law Vs. Statutory Law

    • Common law developed from English common law, based on God-given rights and emphasizes individual freedoms.
    • Statutory law is created by lawmakers and can be interpreted by lawyers and legislators.
    • Statutory Law focuses on the common good and expediency, aiming to minimize conflict.

    Trust Organizations

    • Trusts are legal structures established by law, allowing parties to enjoy certain benefits which would otherwise be illegal without them.
    • Trust organizations allow for limited liability and tax benefits.
    • Common law trusts are rooted in traditional property ownership principles.
    • Statutory trusts are created specifically by laws.

    Types of Trusts

    • Express trust is established with clear and written terms.
    • Express trust requires active management of property by a trustee.

    Pure Trust Organization

    • A Pure Trust Organization is a “now and forever” trust.
    • It is distinct from a testamentary trust, established in a will.
    • Assets are transferred to the trust at its creation.
    • Trustees are appointed by the trust creator, family members can be beneficiaries.

    Benefits of Pure Trust Organization

    • Provides privacy and protects assets from third-party interference.
    • Facilitates avoidance of taxes and restrictions.
    • Allows for property to be transferred discreetly.
    • Several cases support the legitimacy and benefits of Pure Trust organizations, particularly in terms of tax avoidance:
      • Anderson v. Commissioner: Genuine business transactions are not subject to gift tax.
      • Scanlon v. Commissioner: No gift tax applies to transfers to isolated entities, provided consideration is not lacking.
      • Old Ken Bank & Trust Company v. U.S.: Federal estate tax applies to property interests transferred at death. Property transferred to a Pure Trust before death is exempt.
      • Second National Bank of New Haven v. U.S.: Estate tax is levied on the transfer of property at death.
      • Babb v. U.S.: Property ending before death is not subject to federal estate tax.
      • Igleheart v. Commissioner: Estate tax is determined by the value of property owned by the deceased at death.
      • MaCaughn v. Fidelity Trust Company: Property is transferred to a Pure Trust prior to death, not subject to death tax.
      • Shaw vs. Paine: A trust, for probate avoidance, is lawful, irrevocable and separate legal entity.
    • Treasury Department regulations are not conclusive in taxation interpretations.
    • Taxpayers can use a form of organization that minimizes tax burdens.

    Rule Against Perpetuities

    • Liberty National Bank & Trust Company in New York v. case highlights complexities regarding this rule.
    • This rule prevents legal interests from being tied up indefinitely in the future.

    Key Figures

    • H.L. Hunt: A Texas oil billionaire who utilized Pure Trust organizations for wealth preservation.
    • Leon Jaworski: Known for his expertise in tax law and his defense of Pure Trust organizations.

    Pure Trust Organizations

    • The Pure Trust Organization is a lawful, irrevocable, separate legal entity.
    • Pure Trust Organizations are not new to the world or the United States.
    • First Pure Trust Organizations were known in the Roman Empire.
    • The Pure Trust Organization became the preferred method for establishing equity of ownership and management in the Middle Ages.
    • The States of the Union adopted the common law of England as an entire system, including the principles of equity.
    • Early English trust organizations were modeled after the ancient German legal receiver, called the "salman."
    • The "salman" was a person to whom land was transferred so that he could convey it according to the former owner's wishes.
    • Business trust is a hybrid business organization.
    • The trust protects the shareholders from personal liabilities, similar to a corporation.
    • Trustees of a business trust correspond to the board of directors of a corporation.
    • The trustees represent the shareholders and are designated by a common name, which is recognized as a separate business and a legal entity.

    Advantages of Pure Trust Organizations

    • One of the advantages of the Pure Trust organization is privacy.
    • The Pure Trust Organization avoids probate costs and estate taxes.
    • Both trust assets and life insurance benefits bypass the probate process.

    Examples of Pure Trust Organizations

    • The Church of England used a Pure Trust Organization to manage assets and pay out income to the creator and his heirs after death.
    • Patrick Henry drafted the first Pure Trust Organization on record in America in 1765 for Governor Robert Morris.
    • The Morris trust, known as the North American Land Company, transferred lands belonging to Governor Morris to the Pure Trust Organization.
    • William Bingham, reputed to be the richest American, started a Pure Trust Organization for his vast estate in 1804.
    • Bingham's trust owned two million acres in Maine and ceased after more than 160 years of operation due to the multiplication of beneficiaries and the sale of the last properties.
    • Folsom, 159 N.E. 250 (1927): This type of trust organization is sometimes referred to as a "common-law trust" because it's based on the law of contract.
    • Hill et al.v.Reynolds, 75 F.Supp. 408 (1948): The character of the trust for income tax purposes depends on the phraseology of the trust organization instrument.
    • Bouchard v.First Peoples Trust, 148 N.E. 895 (1925): The Supreme Judicial Court of Massachusetts stated that the declaration of trust was different from any hitherto considered by the court and was a valid legal entity.
    • Goldwater v.Qitmun, 292 P. 624 (1930): The California Supreme Court stated that a business trust is lawful in a state where statutes permit trusts to be created for any purpose for which a contract may lawfully be made.
    • Smith vs.Morse, 2 CA 524: A pure trust is established by contract, and any law or procedure in its operation denying or obstructing contract rights impairs contract obligation.
    • Navarro Savings Assn.v.Lee, 446 U.S. 458 (1980): A business trust is a citizen of every state in which its shareholders reside.
    • Crocker vs.MacCloy, 649 US SUP. 39 at 270: A trust organization, consisting of a U.S.Constitutional right of contract, cannot be abridged.
    • Elliot vs.Freeman, 220 US 178: A Pure Trust is not subject to legislative control. The United States Supreme Court holds that the Pure Trust Relationship comes under the realm of equity, based on the common law.
    • U.S.vs. [case to be filled in as the text is incomplete]

    Business Trust Organizations

    • A Common Law Contract, also known as the Unincorporated Business Trust Organization (UBTO) or Pure Trust Organization, can help avoid probate and estate taxes when an individual passes away.
    • The UBTO is a legal entity separate from the trustees, and its assets and business activities remain uninterrupted by the death of a trustee.
    • The UBTO is not a new concept, with Supreme Court cases referencing the "pure trust" form of business organization.
    • The IRS acknowledges that UBTOs are not "classified as trusts" for tax purposes because they are not simply arrangements to protect property for beneficiaries.
    • The Mesabi Trust, which owns the Mesabi iron deposits in Minnesota, is an example of a successful UBTO used to distribute royalties to its certificate holders.
    • The Edward H. Hines Lumber Company, founded in 1914, is another example of a long-standing UBTO that has managed a family estate for multiple generations, avoiding probate and estate taxes upon the deaths of its trustees.
    • The Kennedy family, including John F. Kennedy, is known to have used several UBTOs for tax shelter purposes, including one for their Chicago Merchandise Mart.
    • William Waldorf Astor used a UBTO to save his heirs millions in inheritance taxes by transferring his assets to trustees instead of distributing them through probate.
    • The Rockefeller family has been credited with using various types of trusts, including UBTOs, to minimize inheritance taxes and maintain privacy.
    • The Rockefeller family has been reported to have created over 100 individual trust organizations, many of which are believed to be Pure Trust Organizations, which place funds beyond the reach of probate and inheritance tax laws.

    Introduction

    • The text describes the Common Law Business Trust, also known as the Pure Trust Organization, as an estate planning tool to avoid probate costs and taxes.
    • The author claims that this method can save money and ensure family members inherit assets without financial losses due to probate or taxes.
    • The author emphasizes that the Common Law Business Trust is not a gift, but an exchange of assets with the trust organization, therefore, no gift taxes are incurred.

    Common Law vs Statutory Law

    • Common law is a set of acknowledged rules based on common sense and decency.
    • Common law is derived from English legal system, and often referred to as English Common Law.
    • The author refers to a historical Statute of Uses, which aimed to regulate land ownership and trusts.
    • However, common law judges restricted the application of this statute, leaving many trusts unaffected.

    Pure Trust Organization

    • The text highlights the historical use of trust organizations as a means to preserve privacy, avoid taxes, and control land ownership.
    • The author argues that modern-day tax systems create a need for such a tool to protect against overtaxation.
    • The text describes a trust as a right of property held by one party for the benefit of another.
    • It distinguishes between a "trust" and an "express trust," with the latter involving a written declaration and active management of the property.

    Advantages of Pure Trust Organization

    • The Pure Trust Organization operates like an individual, buying, owning, selling, spending, and earning.
    • It is private and does not require registration with any government entity.
    • The organization can be used for both business and personal transactions.
    • The assets of the Pure Trust Organization are protected from probate, divorce proceedings, and personal creditors.
    • The text cites examples of historical Pure Trust Organizations, including the Church of England and the North American Land Company.
    • It mentions William Bingham, a wealthy American who established a Pure Trust Organization in 1804.
    • The text refers to legal cases supporting the validity and operation of Pure Trust Organizations, including Crocker v.Malley & Smith vs.Morse.

    Exchange of Property and Gift Tax Considerations

    • The text highlights legal decisions, including Burnet v.Logan, that establish non-taxable exchange of property with no fair market value.
    • This concept is applied to the exchange of trust certificates for property within a trust organization, making the exchange non-taxable. 
    • The text emphasizes that subscriptions to stock in common law trusts are considered investments, not gifts, based on cases like Palmer et al.v.Taylor et al.
    • It cites Tyson v.Commissioner, which states that gift tax applies only to transfers with less than full consideration, implying that exchanges within a trust are not subject to gift tax.

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    Common Law Business Trust Organization PDF

    Description

    Explore the differences between common law and statutory law, focusing on their definitions, purposes, and implications. Additionally, learn about various types of trusts including express trusts and pure trust organizations, as well as the role of trust organizations in providing legal benefits.

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