In this YouTube discussion, Matt and Mark Kohler warn viewers—especially California residents—about the dangers of using so‑called business trusts to avoid the state’s $800 franchise tax. They explain that legitimate attorneys rarely, if ever, set up business trusts for small businesses, rental properties, or IRAs, and that most promoters are non‑lawyers selling a dubious product. Real‑world examples illustrate how title companies and banks often refuse to recognize Delaware business trusts, forcing costly unwinding and legal fees. The conversation also provides historical context, noting that business trusts date back to the 1890s and were originally used for conglomerate control, not tax avoidance, and that they have been targeted by antitrust actions. Moreover, business trusts frequently appear on the IRS’s “dirty dozen” list of abusive tax‑avoidance schemes, which can lead to severe penalties. The speakers advise anyone considering or already using a business trust to obtain a qualified attorney’s opinion, verify the promoter’s credentials, and generally avoid the structure in favor of more conventional entities like LLCs or IR‑LLCs.
Chapters
So, all right, Business trust organizations. I don't know where this started. I don't know the genesis of this. All we know is that we got a heck of a lot of people that come to us thinking they need a business trust rather than an LLC or an S corp or they want to need a business trust rather than an ira. Llc. Most of these people are in California and they've got sold on one thing, $800 fee. If you use a business trust, there's no $800 fee in California. You don't want to pay the $800 fee to the state of California. And I know there's a lot of people hell bent on that $800 fee. They will do anything. They will spend $900 to save the $800 fee. Let me just to make a couple points. I don't know any attorney that really sets up business trusts for the typical small business for rental properties for IRAs that stands by them. I just don't run into them. You never hear other lawyers talk about them. We don't see high, super high net worth clients, any sophisticated clients using them. The only ones we see using them or that bring it up are ones that got sold it from someone who's not an attorney, who sells at a Holiday Inn. Trusts for asset protection and all this, they don't work. I can't tell you how many issues I've had with clients that have set these up, that have bought properties with them. They go to sell them. No one knows what the hell it is. The title company's like, what is this? This state doesn't have business trust. I know it's a Delaware business trust. Okay, but you're in California. I had an Arizona client with that. They're like, yeah, we don't recognize that here. They wouldn't transfer the property. The person had to unwind the whole thing, deed the property back to the person they bought the property for, have them deed it back to them into a new. Into their personal name actually. Then they were able to sell the property. It was a total nightmare. Tens of thousands in legal fees to fix These things are clunky. Some people what's happening is they're selling you a business trust, but they're setting up a revocable trust. And so everyone's confused on what the heck it is. So it kind of works because like the title company or the bank or something's like, oh, this is just like a revocable living trust, like for your estate plan. Yeah, okay, all right. And so somehow it's working in certain instances, but it's really not. That's not what it is. Right. Like it's not a trust that when you die someone gets this. And, and so these business trusts, I don't recommend them. We don't set them up. If you want an IRA to own one, just get an opinion from an attorney that's setting them up. We require that for IR LLCs anyways. We get not only our law firm, lots of other lawyers that set up IR LLCs here with us. I don't see one that'll put a letter together for a business trust owned by an ira. So watch out for the business trusts. If you have one, I'd probably look at getting rid of it. And if you're considering one, I would take a step back and get a professional opinion or the person who's setting it up. Ask them what their credentials are. Are they a lawyer? Are they really standing by this and setting things up for their clients every day? Or is this someone that's you met at a seminar? Hawken Trust is estate plan as asset protection and they sell you on it because you don't have to pay 800 bucks to the state of California.
Yeah, I, that was.
I didn't love that. I didn't love that. That wasn't good fun for me. Sorry guys.
Now let me throw out a couple other thoughts where someone came up with the idea that business trusts could save taxes. That's. That's that genesis of some nut job that we're talking about. Business trusts been around since like the 1890s when large conglomerates started to use business trusts to consolidate operations and holdings. John D. Rockefeller used a business trust, but it wasn't to save on taxes. It was. And then they got under attack for. For abusive conglomerate. What do they call it? Anti trust issues of controlling monopolies through these trusts. So business trusts have been around a long time. Matt and I know what business trusts are, but they weren't set up to avoid taxes. Number two, business trusts are also on the IRS dirty dozen on a regular basis. These companies complex trust to somehow avoid taxes are consistently on. The taxpayers should be aware that this is right off the IRS dirty dozen. Abusive tax evasion arrangements involving trusts will not produce the tax benefits advertised by their promoters. This could be foreign trusts, it could be onshore trusts. And this is exactly why people get in go to jail because. Because someone talked them into this structure. So just freaking. We want to be aggressive, we want to save taxes. We want to try to find the best loopholes for our clients that are legit. But when someone's trying to sell you into an irrevocable trust, just remember the word irrevocable. Very difficult to unwind. They can cause a lot of problems. And the IRS is not a fan, which I'm not trying to be. Get the irises to follow me on Instagram. But just be. Be careful, people. There's my take.
Yeah. And I just say, I know. People be like, well, I know. Look, Matt, it's a Delaware business statutory business trust. Okay. Are you in Delaware now? I'm in California. Okay. And here's the California franchise tax guidance. They say they don't charge an $800 fee to business trusts. Okay. Does that mean that that structure is a legit way of operating in California? I mean, I just. It's not. It's not answering the question. I'm just saying you never see professional attorneys or, you know, recommending this. It's kind of just like a. I don't know. I don't love it. You'll never be happy at the end. I just. I just feel like I'm. I'm, like, cleaning them up more than I'm ever seeing anyone happy with it.
Yeah, the same thing with the C Corps in Nevada or Florida.
