Meet Bert
By: Stephen Ross, Esquire
As a business owner, you have probably given some thought to business succession planning. As a wealthier individual, you have also probably thought about how to pass more of your assets outside of your estate. When you start to think about it, do you get an intense headache? Don't worry. You're not alone. Instead, say hello to your new best friend, BERT!
BERT stands for Buildup Equity Retirement Trust and it is an extremely powerful tool to implement as part of business succession planning. The name is actually misleading: it doesn't have to be used for retirement purposes. It doesn't even have to be used for business succession planning. It is a simple way of conveying wealth that is protected from creditors and predators, does not have to pay its own taxes, can pass an unlimited amount of wealth free of estate taxes, can hold shares of almost any entity, can be added to every year, can provide income during your lifetime, can pass wealth to your heirs that protects them from creditors and predators, and can be used if you have a spendthrift heir. It is no mystery why this is sometimes referred to as Bert, the Wonder Trust.
Bert is indeed a special kind of trust. It is always setup with money or assets that utilize the lifetime gift tax exemption of $1,000,000. Due to the utilization of this exemption, the money that flows into this trust is no longer includable in the estate of the person who gifts it. Assts can be added to the trust each year up to the annual gift tax exclusion amount of $12,000 per person.
Furthermore, the person who gifts the money into the trust is allowed to pay taxes on the income and capital gains that the trust produces. As a result, the assets can grow at a tax-free compound rate that is equal to that of an IRA with withdrawal and transfer restrictions similar to those of an IRA. If you have a lot more in assets to contribute, the BERT can be supercharged to take extreme advantages of the compound power of this tool.
As added bonuses, the trust is creditor and predator protected. This means that you can protect the money in the trust from anyone who sues you as part of your ongoing business operations, financial problems, etc. In addition, when the trust passes to your heirs, the assets are protected if the heir has a spendthrift problem, the heir gets divorced, the heir has a substance abuse problem, the heir declares bankruptcy, etc. You can pretty much clear up a lot of the nightmares when you think about just leaving just leaving assets outright to your heirs.
If all of the above was not good enough, hold on because it gets even better. The BERT trust can hold almost any kind of business entity, including S Corporation shares. This becomes incredibly powerful because the shares of the corporation can be placed inside the trust when they might be worth a modest amount of money. However, as the value of the business grows, and grows, and grows some more, the value of those shares inside the BERT trust can be passed on to heirs without incurring the death tax regardless of their value. That's enormous leverage that you should take advantage of.
Now that you have met BERT, don't you think you should get to know him a little better? The drawbacks are minimal while providing an incredible array of benefits. It is truly an amazing tool that should be used in conjunction with any business succession planning that you currently utilize. As always, you should consult with an attorney before using BERT to its maximum capabilities.
