With this article, I want to explore in detail the concept of private trusts and how they serve as powerful vehicles for asset protection, privacy, and limited liability in all of your personal, family, and business commercial endeavors.

Chances are you've at least heard about trusts and private trusts. It's a well-known concept, but generally not taught as much as it could be. Of course, many times we hear about the negative connotations of trusts—antitrust legislation, trust fund babies, spoiled rich kids living off trust funds. Now, all those things are true and based on facts that really happen, but unfortunately, this information tends to discourage people from learning more about trusts.

On the other hand, many people are aware that you can hire attorneys to help create what's called a "living trust" or other specific types of trusts. Some people will do that, but others are discouraged because they think, "Oh, I have to potentially pay thousands of dollars for an attorney to set that up for me. It may just not be worth it," or they're unclear about the value it could provide when established.

So let me make a couple of things clear. Trusts as a concept have existed for a very long time—potentially in some form or another for as long as we've been around as humans. Obviously, the modern variant of trusts is very specific, and there are different types of trusts that can come into play.

What Is a Trust?What Is a Trust?

A trust is simply a three-party arrangement—a type of legal contract or agreement where assets are set aside for a specific purpose, specifically to be stewarded or maintained for the benefit of one of those three parties. The reason it's a three-party system is so that you have someone who comes along with assets they've previously held themselves. It's been their own property, and they come along and say, "This is my property, but I actually want someone else to steward it, to maintain it over time, including after I'm long gone, and I want them to do it for someone else's benefit—for the third party."

This first party in a trust contract is the grantor—the one who grants the property into the trust. The second party is the trustee—the party who is entrusted with stewarding the assets, protecting them, and defending them over time. And the third party is the beneficiary—they're the ones who get to benefit from the assets.

It's a very interesting framework, and it has a lot of derivative benefits.

The Three Core Benefits of Private TrustsThe Three Core Benefits of Private Trusts

Asset ProtectionAsset Protection

The first benefit is asset protection. Let's say, for example, you take out a mortgage and buy a house. So now you think you have a house, but essentially you have a mortgage because you're paying for the house, right? Typically, most people when they buy with a mortgage will do it in their own name, meaning you and potentially your partner would essentially buy the house in your own personal liability. The house is in your name, and the mortgage is in your name.

What's the issue there? Well, the house is an asset. Its value can increase over time and often does. Even though it's not a liquid asset in the sense that you would have to sell the house to extract the cash value, that's still something that can be done. So it's an asset.

Assets by their very nature are subject to what I call the three A's: taxation, regulation (perhaps a little less so with houses, although there are certain zoning requirements that can apply to even residential homes), and litigation or lawsuits. In other words, lawsuits, claims, judgments—could be debt-related, could be just any kind of judgment.

So what that means is if you have a big liability, whether it's someone who has sued you or there's some regulatory requirement or you owe taxes for whatever reason—you have some big liability of any kind—and you're not able to satisfy it, if a judgment is awarded against you in court, for example, then the judge or the legal system can come along and say, "Well, you own this house. It's in your name. You have an obligation. We can force you to liquidate that home in order to satisfy the obligation." And it could be even the mortgage itself. So it's all in your liability.

You've probably heard the expression "with ownership comes liability" or its counterpart, "own nothing, control everything." Basically, what's happening is when you acquire these properties in your own name, they're not really protected if there's a judgment brought against you.

And the same is actually true for your business. If a business owns assets and you're sued personally or the business is sued, it's very easy for the courts to come along and just seize those assets. For a business, part of the reason is because every business that's incorporated—such as an LLC or a corporation—well, those are all registered entities, right? In order to set those up, you had to register with the Secretary of State, or if you're in another country, you had to register with some entity that regulates the establishment of a business entity.

And that means the state has an automatic security interest in those entities. So they can come and seize those assets owned by the business to satisfy even personal claims brought against you as the business owner. So even there you're not really protected. There isn't really any strong asset protection when you buy things in your own personal liability or even in a business.

PrivacyPrivacy

Privacy is the next benefit of private trusts. The issue with privacy is that, to some extent, you would consider your family affairs to be private, right? You don't want them out in the public. But even if you own a business—again, an LLC or corporation—even though it's a registered entity, you want to keep your business activities private. You don't necessarily want everybody to know about them. That's why we call it proprietary.

But again, because the state has a security interest in your business automatically because you registered it, you can't really enforce true privacy there. To some extent, it's all out there.

Limited LiabilityLimited Liability

The third aspect is limited liability. It's right in the name of the company type: limited liability company, or LLC. Other countries have a similar construct. So the idea is: am I not limiting my liability by operating using an entity like that? And what does that even mean to limit your liability?

Limited liability means that the party—the entity that's conducting commerce, in this case the business—is the party that's liable, and you're not personally liable for the liabilities of the business, as long as you act morally and do the right thing. As long as you don't act in gross negligence or engage in what's called willful misconduct, where you're conducting some kind of untoward activity with the business assets. So as long as you're doing your proper duty, the idea is that you're not personally liable for what happens in the business, for any claims that come against the business. And vice versa—the business is not liable for your personal issues. It creates a separation.

So again: asset protection so those assets can't be seized to satisfy claims, privacy so that your endeavors or activities are kept private, and limited liability so there's a separation of liabilities—you're not personally liable for what the business does or the entity, and vice versa. These are the three things that we are striving for.

The Problem with Registered EntitiesThe Problem with Registered Entities

As I mentioned, because all limited liability companies and corporations and so forth are registered entities, the state has an automatic—the state is like a co-owner of all those entities. So it has an automatic security interest in them, which means if any of those end up in court, you don't really have true asset protection or limited liability because the state could just cross over that line based on that security interest and essential ownership of that entity.

So how do we address all that?

The Solution: Private Irrevocable TrustsThe Solution: Private Irrevocable Trusts

The only way to do it properly from a legal and lawful perspective is to use private irrevocable trusts.

That's why we focus so much on trusts as part of the Freedom Studio. It's one of the main pillars of what we teach, of the education we provide, of our focus. It's how we operate as an organization, and many of our members have also set up private trusts.

Private trusts, despite their reputation, are accessible to everyone. You don't have to be from an ultra-rich family. You don't have to be super wealthy to access this knowledge. It's just generally been discouraged and been a little bit difficult to get hold of that knowledge—which is again why we focus so much on education at the Freedom Studio.

Private trusts are well established in law. There's a long precedent of case law going back hundreds of years that demonstrates clearly that private trusts are recognized as entities that can conduct business. They can do commerce. They can hold assets, and they can afford limited liability, privacy, and asset protection.

They are private by their very nature because they're not registered. You would never register a private irrevocable trust. You might in some cases have an interface with the public vis-à-vis—for example, if a trust has a bank account, obviously its existence is going to be known to some extent. But the actual contract, which is private—it's called a trust indenture, which is kind of the private analog to the operating agreement of an LLC or the corporate bylaws of a corporation—unlike those entities, this is completely private. Just a handful of people, including the trustees, would even know about its existence and would even know the contents of that contract. So it's a very private contract, and any other contracts that the trust enters into are treated similarly. They're very private.

Taking Private Trusts to the Next Level: Equity JurisprudenceTaking Private Trusts to the Next Level: Equity Jurisprudence

Now, what takes private trusts to the next level is combining them with equity jurisprudence, with equity as a legal jurisdiction. Again, nothing new—as the famous saying goes, there is nothing new under the sun. This is all timeless knowledge. This has all been around for a very long time. It's just been very well hidden.

So when you combine a private trust with equity—and when I say combine, what does that mean? Well, just like any contract, a contract needs to be established in some legal jurisdiction.

Most of the contracts that you and I are familiar with, and that businesses operate under—the vast majority of them—are called statutory because they're subject to statute and code, which is the code that applies to corporations and corporate legal persons. It's also called maritime admiralty commercial jurisdiction, and it's basically the modern equivalent of law merchant. It's based on the UCC in the United States—the Uniform Commercial Code—and the Bill of Exchange in other Western countries. So it's this corporate code that is derived in its history from Roman law. It's highly regulated. It's highly prolific—just constantly more and more regulations. And it's statutory. Usually, you have to hire an attorney at law to help you create these kinds of contracts, or at least most people are used to running them through an attorney. So that's the statutory or maritime admiralty commercial jurisdiction.

Now, above that—because it is a higher level—is what's called common law. So some folks, as they've gone out to explore setting up trusts, have probably come across, for example, the Massachusetts-type business trust or the unincorporated business organization trust (UBO), or just the common law trust.

This is already much better than a statutory trust in that you don't need to hire an attorney to create one. It's not in the statutory jurisdiction by default. It's in common law. And so by its nature, it's already better at providing asset protection, privacy, and limited liability.

However, it's still not the best that we can do. It still falls short of the high standard. And that's just because common law itself falls short of that standard. In fact, this was recognized hundreds of years ago—that common law was falling short, particularly in the area of trusts. It couldn't really provide adequate remedies for beneficiaries of trusts when their interests were being harmed, because they're not a signatory party to the trust as a beneficiary and they have no legal title to the assets of the trust. So they were kind of being left out. Also, common law is very rigid. It's really about awarding damages based on violations of contract agreements and not really about getting people to do or not do a thing.

So along came equity—and again, this is hundreds of years ago, this is not something that just happened. Along comes equity, which is created as what's called the laws of fairness and right dealing—the most flexible man-made legal jurisdiction of all. Equity is the jurisdiction that can literally create a remedy where none exists.

And that is, in my opinion—and it's not just my opinion, but you can discover this for yourself—much higher than both common law (because it was built on top of common law) and it's certainly higher than statutory. It's about as close as you can get to natural law. It's a very close approximation to the way morality actually works subjectively in nature, and that's what makes it so powerful.

It acts—and actually, one of the maxims of equity is it acts on the conscience—because equity is all about good conscience, doing the right thing. And therefore, the remedy of equity is largely about getting people to do the right thing. That's why the principal remedy of equity, or one of them, is called compelled specific performance—getting people to do the right thing.

How Equity Trusts Provide Maximum ProtectionHow Equity Trusts Provide Maximum Protection

So what does that have to do with trusts? When you establish a trust in equity—meaning you establish the trust in the equity legal jurisdiction—you are essentially conferring to that trust the highest level of power and protection from a legal perspective that you can possibly achieve. Again, higher than statutory (which we can really discard because that only applies to corporations and persons, not to actual men and women). Common law is better because it applies to property, but again, it's not the best. And then equity, which is said to act in personam—it acts on people.

So in many ways, a trust that is established in equity has almost the same rights as a living man or woman. It's very high up. A trust held in equity—a trust that's established in equity—is very highly regarded and it has a very high level of rights in the law or under the law, even the commercial law.

An equity trust does not need statute to operate. It does not require the force of statute to even protect it. However, these kinds of trusts can, in the worst case, still end up in a court of law, in a commercial court. And when they do, because they are established in equity and when they are being stewarded by equity-minded or equity-trained trustees, that provides the maximum level of protection.

So that's why and how an equity trust can serve you.

Use Cases: Families and BusinessesUse Cases: Families and Businesses

What are the use cases? Well, if you're reading this, you may be a family head of household. You may be a family member. You may be thinking about this in the context of your family. So that's a great use case.

And the other big use case, of course, is a business owner or the director of a business or an organization that's conducting commerce. Everything is commercial. Of course, even in families, we're all conducting commerce. For businesses, it's more obvious that they are commercial endeavors. So both businesses and families have assets. Asset protection is going to be important in the context of either a business or family.

Privacy is obviously important. I would say it's particularly important for families, and it's particularly unfortunate that a lot of family issues end up in the courts or end up in the public. And then of course we talk about limited liability, which is one of the main reasons why we set up businesses in the first place—to separate liability.

A private, properly set up private trust system—with private irrevocable trusts in equity jurisdiction, with trustees who know about equity and how it works—is really going to provide the maximum level of asset protection, the maximum level of privacy, and the maximum level of limiting liability of the parties involved when it's properly set up and properly maintained.

The Path ForwardThe Path Forward

I hope you've enjoyed this exploration, because the rabbit hole goes deep. Despite the complexity, a trust can be in place and operating in the private within a month or so. Studying how to establish it and maintain it is undoubtedly worth the effort.

The knowledge is out there. The precedent is established. The framework has stood the test of time. Now it's just a matter of taking action and implementing these structures in your own life and business.