Worthington Group in keeping with one of its goals 'to inform', engaged Information Resource Associates to research the subject of -What Is "Probate"? How To Avoid It, and Best Way To Handle It-. Worthington Group does not present the following information as any type of legal advice. It is to only inform and educate the reader.

A very popular and controversial book, "How to Avoid Probate" written by Norman Darcey, attorney, raised American's consciousness about the process of probate. The good news is that the reader of this document will not be required to read the entire book written by Mr. Darcey. In a few paragraphs of text we believe we can explain the basic contents written for lay people. The concepts are fairly simple however, it is important to fully grasp all of the points made.

WHAT IS PROBATE? ~The following excerpts are from Mr. Darcey's book

**Probate is the legal process In which a person's estate, If any, is settled after their death.

"Probate is cash demands on an estate". Internal Revenue Code 2042 "Probate" can cost many thousands of dollars and can delay the settlement of the affairs of an estate while forms are prepared and Court clerks look them over.

**A major, perhaps the most valid criticism/objection to probate is, it can open up a person's financial affairs as a public record.

Everyone has probably heard horror stories about probate and a cost of 75% or more of the value of the estate. "The lawyers got rich while the grieving widow was left penniless." This can happen; however, the conclusion that all steps, Including very convoluted, expensive, "probate avoidance" schemes are needed by everyone just is not true.

**The horror story in which the widow spent thousands of dollars on probate fees is usually a case of a person dying Intestate, or with two persons who both think that they are married to the same man! (It happens all the time).

**In the typical scenario a fellow has two families a few hundred miles apart and when one side thinks that he is spending a few weeks out on the road, he's really with the other family. I am not being sexist here--( I have been involved or heard about 7 or 8 cases like this In my career and the polygamist was always the man.)

**Most cases in which probate drags on would drag on if the person had a will. The usual case is that someone disinherits close to their death, a natural object of their affection, and the family who probably were feuding like the Hatfields and McCoys continue to slug it out thereafter.

HOW TO HANDLE IT USING A LIVING TRUST IE: GRANTOR TRUSTS:

Darcey's book, which was critical of the legal profession and the court system, suggested "that persons execute "living revokable trusts." (some are called "Inter vivos" trusts). The argument In favor of revokable living trusts is, that since there is no property in the person's estate (the trust owns it) there is no probate.

A living trust is a good idea if you fear that either you or your spouse will experience temporary or permanent disability. In this case, your trust can provide that trustees, either family members or a bank or professional can manage your efforts.

You appoint yourself the trustee during your own life and then at death your beneficiaries or a corporate/bank trustee deeds the property to your beneficiaries, continues to run, or makes distributions to your heirs. Even better, the trustee can be given the discretion to decide what to distribute to whom, if that's what you want.

"Let's say that you have a living trust, but you forget to deed over some property that you inherit or acquire to the living trust. An instant probate is caused. A legitimate attorney/estate planner will insist that in addition to a living trust that you have a "backup" will.

"There are a number of reasons which make living trusts attractive. Example: The trust should designate a trustee who will take over during the Incapacity of the maker In his or her lifetime. In addition the living trust can make arrangements in case the any of the beneficiaries are spend thrifts (that is, they will spend everything they get and someone needs to parcel the $$ out to them) or have creditors or spouses, that shouldn't get at the money, or are minors. This avoids the necessity of a guardianship being set up for the minors or incompetents who might inherit.

"Many people are so (over) concerned about "avoiding probate" that they spend large amounts of energy on that and forget to watch out for estate taxes, this is very true and I've seen it.) If your estate Including the value of life insurance exceeds $ 600,000, then your beneficiaries will have to pay estate taxes. There are many ways to avoid estate taxes which are quite legal and simple. Needless to say if your estate exceeds this amount then you need very good accounting and estate tax planning advice. Get it ASAP, or else you could end up donating, unnecessarily, 50% or more of your estate to the I.R.S., instead of your heirs.

"There are number of disadvantages to a living trust. First of all, you will need to pay for the drafting of both a living trust and a will, for the reasons explained above. Then, every time that you acquire some property, you must be sure that it is deeded to the trust. In addition, trusts are taxable entities In their own right, therefore, another set of tax returns have to be filed each year.

"This type of internecine conflict would happen even with a trust.

HAVING A VALID LIVING TRUST DOES NOT OUST THE COURT SYSTEM OF JURISDICTION TO CONSIDER CLAIMS THAT THE TRUST IS INVALID FOR WHATEVER REASON, NOR EXCLUDE ESTATE TAXES.

HOW TO HANDLE IT USING JOINT TENANCY:

"The worst possible way to avoid probate is to jointly title assets. In this variety of lack of estate planning, a person decides who they would like to have as their heirs, and then jointly titles assets to them. There are a number of ways to do this.

"First of all, joint tenancy with right of survivorship, is a very bad move. Here's why. You jointly title your house with your only child. They get married--- that asset could be divided by a Divorce Court. How would you like to have your home co-owned by your child's ex-spouse? You and your only child get along now. what happens if you have a disagreement with your only child? Yes, it can In fact happen. Then what? You couldn't sell the property without your child's permission.

"There's even a problem with a life estate. That is, where you deed property to yourself for your life, with the property passing to heirs on your death. However, you cannot sell the property without the remaindermen's (that's the people who get the property when you pass away, the people to whom the "remainder of the estate" is passed) consent.

"Let's assume that there will never be the slightest possibility of a family disagreement. There is another reason NOT to jointly title assets. In a joint tenancy with right of survivorship, what happens if your child passes away first?

HOW TO HANDLE IT USING PURE TRUSTS

IE: UNINCORPORATED ORGANIZATIONS (CONTRACTUAL BUSINESS):

THE 12 MAIN ADVANTAGES OF A 'PURE TRUST'

1) 'Pure Trusts' are perfectly lawful and guaranteed by the United States Constitution, and Supreme Court decisions.

2) 'Pure Trusts' are inexpensive to establish, easily maintained by you without an attorney, and involve minimum paperwork.

3) 'Pure Trusts' are lawful in all 50 states, and if established in one state, they can be operated in a different state.

4) 'Pure Trusts' are considered a lawful person in the eyes of the law with the power to own, buy, and sell property and other a$$ets. It can sue and be sued, but collecting on a judgment is almost impossible.

5) Even though legal title to property is conveyed to the trustee/s, you continue to use those a$$ets conveyed into 'Pure Trusts'.

6) 'Pure Trusts' are irrevocable, leaving no question as to the ownership of a$$ets.

7) 'Pure Trusts' are private contracts between you and the trustee/s, therefore no information about a$$ets or heirs becomes public knowledge.

8) 'Pure Trusts' are never subject to probate or estate taxes.

9) 'Pure Trusts' can be used to control tax liability.

10) 'Pure Trusts' ~can operate any lawful business anywhere in the world with limited liability, while using most of the advantages of a corporation, while eliminating the disadvantages of a corporation.

11) 'Pure Trusts" require no periodic reporting or accounting to any State Agency.

12) 'Pure Trusts' have the same Constitutional rights as any individual, i.e.: right to privacy, freedom from unwarranted searches and seizures, and all other rights, 1st, 4th, 5th, 14th amendments, etc,

HOW TO HANDLE IT USING COMMON LAW/CONSTITUTIONALLY BASED CONTRACT TRUSTS (CONTRACTUAL BUSINESS):

Benefits: 1) Right to Privacy, 2) Personal Liability Protection, 3) Asset Preservation, 4) Tax Reduction Planning, S) Complete Estate Planning, 6) Probate Avoidance, 7) Business Organization, and many other benefits too numerous to list. Your future planning using Common Law/Constitutionally based Contract Trusts may only be limited to your lack of knowledge and your own imagination.

CONTRACT TRUST: Court Cites and Internal Revenue Codes

I. Confirming the Trust Contract

a) "Certificate holders are devoid of legal rights, have no officers, are and must remain forever mute as to the selection~ approval or disapproval of the trustees and their methods of conduct of business affairs would make the trustee absolute owner" Bourchard v. First People's Trust, 253 Mas 351, 148 NE 895

b) Right to Contract: Schumman-Heink v. Folsom, 159 NE 250. (1927)

c) "United States Supreme Court has long held and recognized that freedom to make contracts and have them enforced by the courts is a part of the bundle of rights protected by the "due process" clauses of both the Fifth and Fourteenth Amendments". Patterson v. Bank Eudora (1903) 190 US 169, 47 L Ed 1002, 23 5 Ct 821; Muller v. Oregon, 208 US 412, 52 L Ed 551, 38 5 Ct 324 (1908); Frisbie v. U.S. 157 US 160, 39 L Ed 657, 15 5 Ct 586 (1895)

d) "The trust contract is established by private parties, for personal purposes, is not registered with the state corporation commissioner to comply with statutes relating to Incorporating and does not invalidate the trust organization". Hodgkiss v. Northland Petroleum Consolidated, 104 Mont 328, 67 P 2d 811

e) "Certificate holders of a Trust Contract enjoy an even greater immunity from personal liability than is accorded to stockholders of corporations". Goldwater v. Oltman, 210 Cal 408, 292 P624, 71 ALR 871

f) "One of the main objectives of a trust contract is to obtain most of the advantages of corporations, but with freedom from the burdens, restrictions, and regulations generally imposed upon them". Ashworth v. Hagen Estates, 165 Va 151, 181 SE 381

g) "The United States Supreme Court has acknowledged the trust contract as a "pure or true trust," citing the Hecht case in Navarro v. lee. Hecht v. Malley, 265 US 144 (1924); Navarro v. lee, 446 US 458 (1980)

h) Business Trusts are found in Corpus juris Secundum and American jurisprudence, 2d.

i) "Business Trusts are recognized under the term "common law trust" 88 American Law reports 3d 704, citing Schumann-Heink v. Folsom, 328 III 321, 159 NE 250, 50 ALR 485 (1927).

j) "Probate is cash demands on an estate". Internal Revenue Code 2042

k) "A Trust is one of several juridical devices whereby one person is enabled to deal with property for the benefit of another person

II. CONTRACT TRUST RECOGNIZED BY TREASURY DEPARTMENT AND IRS:

a) Internal Revenue Regulations acknowledgement of Contract Trust Organization. Treasury Regulation 301.7701-4 (11); Berry v. McCourt, 204 NE 2d 235, 240

1) Business Trusts - there are other arrangements known as trusts because the legal title to property is conveyed to trustees for the benefit of beneficiaries, but which are not classified as trusts for purposes of the Internal Revenue Code, "because they are not simply arrangements to protect and conserve the property for the beneficiaries." Treasury Regulation §301-7701- 4(1)). Morrissey et al. v Commissioner (1935), 296 U.S. 344 (36-1 USTC 9020]

b) "An "exchange" is a reciprocal transfer of property as distinguished from the transfer of property for money or consideration only". Treasury Regulation 118, 39.112(a) 1, (e)

c) "The owner of Beneficial Certificates is not an owner as a stockholder is an owner; that Certificate Holders have no ownership whatever in property held by the Contract Trust, nor do they have any voice or control over the Trustees". Becker v. St. Louis Union Trust Co., 296 U548, so; 80 L.Ed 35; 56 SCt78

III. NO GIFT OR ESTATE TAXES:

a) "Certificates have no ascertainable "Fair Market Value", and have minimal value to someone else. Bad bargains do not result in taxable gifts". "Contract Trust is a genuine business transaction". Estate of Anderson v. Commissioner of Internal Revenue, 8 Tax Court 706.721

IV. NO CAPITAL GAINS TAXES:

a) "If a bona fide transfer, sale or exchange is made at arm's length in the ordinary course of business, the transaction will be assumed to be for consideration and not gratuitous. A consideration that is not reducible to a value In money or money's worth, i.e.:, love and affection or promise of marriage, is to be wholly disregarded and considered totally gratuitous". Internal Revenue Service "Federal Estate and Gift Taxation Publication", #488

b) The United States Circuit Court of Appeals for the First Circuit has long held "that full and adequate consideration is met by issuance of trust certificate units In exchange for real and personal property invested in a pure trust organization" Carpenter v. white, CIR, 80 F 2d 145

c) "The measure of the gain. . . of an exchange is the difference between the (adjusted) costs basis of the property transferred . . and the fair market value of the property received". Internal Revenue Code 101 (a), (')); Parrington v. Attorney General, LR.H.L. 100, 122

d) "No "Equitable Construction" of a tax statute, Code must be strictly construed". "Gain measured from fair market value of property received". U.S. v. Merriam, 263 US 179 (1923); Commissioner v. Harrelson, 282 US 55 (1930). Gould v. Gould, US 151

e) "The "fair market value" is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having knowledge of all the relevant fact. It may not be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public". Federal Estate and Gift Taxation, Publication No.448; Davis v. U.S., (1961) 287 F 2d 168, 82 5 Ct 805, affirmed in part and reversed in part on other grounds, 370 US 65, 82 5 Ct 1190, 8 L Ed 335. Rehearing denied 371 US 854, 83 5 Ct 14, 15

f) Section 111(1)) requires "that the capital gain be measured by "the fair market value" of the property received (emphasis added) by the taxpayer, not by the fair market value transferred by the taxpayer in exchange for the property received". "To say that the fair market value of the property received is the same as the fair market value of the property given up not only ignores realities, but is the use of a formula which is radically different from the recognized formula approved by the courts for determining fair market value". Commissioner v. Marshman, 279 F 2d 27, Cert. den. 364 US 918, 8 5 Ct282, 286; 5 L Ed 2d 259, Maxfield v. U.S., 152 F 2d 593, Cert. den, 2 Cases 327 US 791, 66 5 Ct 821, 90

g) This definition primarily benefits the Treasury in estate tax situations. However, "IRS may not have one definition for "fair market value" at one time when it is beneficial, and a different one for another time when the benefit goes to the taxpayer⁹'. "The IRS is obliged to keep their conclusion that the fair market value of valuable beneficial units cannot be determined in any forum other than a voluntary sale".

"The IRS may not force a sale to determine price where the item displays an Inherent yet unsettled value. They may also not force the beneficial units to be sold in a market other than that in which such certificates may commonly be sold to the public. In addition, when the Treasury say "public," they mean at retail rather than wholesale. The value of above definition is evident In the point that the client may plan affairs around hard and fast rules not subject to change". Federal Estate and Gift Taxation, Publication No.448, p.39 Burnet v. Logan, 283 US 404, 51 5 Ct. 75 LED 1143 (1931)

h) "Interests which terminate "on" or "before" death are not a proper subject of the Federal Estate Tax". Knowlton v. Moore, 178 US 41, 20 5 Ct 747, 44 L Ed 969 (1900); YMCA v. Davis, 264 US 47 (1924), 44 5 Ct 291, 68 L Ed 564; Goodman v. Granger, 243 F 2d 264 (1957); Babb v. US, 349 F Supp 792 (1972)

V. CONTRACT TRUST AS A LEGAL ENTITY:

a) "The Contract Trust owns the property and is a distinct legal entity". "Beneficial Certificate Holders are not treated as co-owners of trust property". National City Finance v. Lewis (Cal App), 3P 2d 316 (Rehearing denied) 4 P2d 163; Beilin v. Krenn & Dato, 350 111 284, 183 NE 330; Hemphil v. Orloff, 238 Mich 508, 213 NW 867, 58 ALR 507, affd 277 US 537, 72 L Ed 978, 48 5 Ct 577. Annotation 156 ALR 32. Goldwater v. OlIman, 210 Cal 408; 292 P 624

b) "The Contract Trust does not escape the necessity of having substance and business motives. "Sham" transactions, having no economic effect other than the creation of income tax losses, cannot be recognized for tax purposes" .Thompson v. Commissioner, 631 F 2d 642, 646 (1980) Cert. Denied, 452 US 961 (1981) Edwards v. Commissioner, 415 F 2d 578, 582 Lewis and Talor Inc. v. Commissioner, 447 F 2d 1074 (1971)

c) "The fact that transactions of business are so arranged that tax consequences are highly favorable (or altogether avoid taxes) affords no license to the government to recast it into a mold of less advantage". Gyro Engineering, Inc. v. US, F 2d 578, 582 Peter Pan Seafoods, Inc. v. US, 417 F 2d 670

VI. LEGAL AND EQUITABLE TITLE HELD BY CONTRACT TRUST:

a) "legal and equitable title held by contract trust". Hecht v. Malley, US 144, 68 L Ed 949, 44 Ct 462 Williams v. Milton, 215 MASS 2, 102 NE 355 Goldwater v. Ollman, 210 CA 148, 292 P624, 71 ALR 871 Schumann-Heink v. Folsom, 328111 321, 159 NE 250, 58 ALR 871

b) "When legal and equitable title, possession and control of property are legally and irrevocably passed from the Trustor (contracting investor) to himself as Trustee In legal contemplation, it is as though the Trustee receiving the conveyance is another person". Commissioner of internal Revenue v. St. Louis Union Trust Co., 296 US 48, 50 (1935)

c) "Property invested in the Contract Trust Organization must be fixed and irrevocable. Thus the Trustor (contraction investor) may legally be recognized as a different person even when de facto he/she may be the same human being. Trusteeship is a position created by parties at arm's length which when established is an office to be occupied by any qualified person". Becker, Collector of Internal Revenue v. St. Louis Union Trust Co., 296 US 48, 50, 50: 80 L Ed 35,56 S Ct 78

d) "Genuine contractual obligations control the substance". Estate of Hilto N. Goodwyn, T.C. Memo 1976-238

e) "Trustees of the Contractual Trust have the exclusive power to interpret or construe the Intent and direction of the Trust Indenture". Cohen v. US Trust Securities Corporation, 40 NE 2d 282

f) "Statutes may authorize limited liability of partnerships and corporations, but those statutes do not by implication prohibit the creation of Contract Trusts to enjoy similar immunity by virtue of the Common Law". Goldwater v. Oltman, 292 P 624, 71 ALR 871 Annotation

g) "In tax context, "Associated" relates to a joint action and Interest of the stock holders and their directors. Contract Trust Trustees and Beneficiaries are not associated in a joint action Elm Street Realty Trust, 76 TC No.68 (1981); Morrissey v. CIR, 296 US 34 (1935); Crocker v. Malley, 249 US 223(1919); Internal Revenue Regulations 301.7701-1,2(a) (2); Schumann Heink v. Folsom, 159 NE 250, annotation 58 ALR 485; Hecht v. Malley, 265 US 144

h) Treasury Regulations state the term "Person" includes an "Unincorporated Organization or Group". Treasury Regulation Regulations 301.7701-1 (a); Internal Revenue Ruling 73-254

i) "It is whether the entities were taxable as associations with the corporation rates applied, or as trusts (with the conduit method applied)". Commissioner v. Brouillard, 70 F 2d 154, 157, Cert. denied 293 US 574 No.152; Commissioner v. Brouillard, 70 F 2d 154, Cert. denied 293 US 574 No.152

j) The United States Supreme Court articulated what has become recognized as the standard for determining whether an entity will be taxed as a corporation or as a trust by saying "that it's the nature of the entity's dominant functions and attributes which determines whether it is an association for tax purposes". "The system and course of procedure approximates much more closely that of an ordinary partnership among personal friends reposing "full confidence" ([)pure trust thus a Contract Trust) in each other. The resemblances predominate strongly in favor 6 a trust. Consequently, the entities should have been taxed as trusts, not associations". Commissioner of Internal Revenue v. Brouillard, Same v. Shepherd Syndicate, and Same v. Pryor & Lockhart Development Co., 70 F 2d 154, Cert. den. 293 US 574 No.152, Hemphil v. Orloff, 277 US 537, 48 5 Ct 277, 72 L Ed 978 cited Brouillard Ibid

VII. FOREIGN CONDUIT, (FOREIGN STRUCTURE)₉ MISCELLANEOUS:

a) "(A Foreign Trust (is a trust) the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not included in gross income under subtitle A (1ncome Taxes)". Treasury Regulation §301. 7701 (a) (31).

b) Since 1967 the Internal Revenue Code has actually provided "that a blanket exception from federal gifts taxation is provided for all gifts made by a nonresident alien of intangible property even though the cities or location of that intangible property is within the United States". "IRC Sec. 250 (a) (2). All intangibles include stock, bonds, funds, notes or other certificates of indebtedness (not Federal Reserve Notes "green backs" or US currency, or checks drawn on US banks -- IRR Sec. 25.2511-3 (1)) (4) (IV), bank accounts, or US government bonds, etc".

Worthington Group specializes In the construction of A$$ET Protection using "pure, irrevocable, common law, unincorporated organization, contract trusts, or any similar name. The names may be varied and many, but the basic context contained in the 'contract' is the same and qualifies according to Treasury Regulations, IRS Codes, and Court decisions.

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