The Multi-Investor Future Income Trust Model
By: Mark E. House
One of the recurring themes when talking to Alcor’s members is how to save for revival after being cryopreserved. For many, the administrative costs of having an asset preservation trust are too high to justify setting money aside for this purpose. The Multi-Investor Future Income Trust is designed to remedy that problem by consolidating all of the investment assets into a single entity. At present, the cost of the MIFIT is $5,000. This includes the preparation and execution of the Trust, as well as the funding at death. There would be no further expenses during life or following legal death.
There are two components to the MIFIT. The first is the Future Income Trust itself. The MIFIT is a specialized version of an asset preservation trust. The MIFIT is not funded until the grantor is deceased. It can only hold cash, so any assets which would be funded into the MIFIT will be liquidated prior to distribution to the Trust. Once the cash is in the Trust, the Trustee of the Trust will use the cash to purchase shares of a company, FIT Investments, Inc. (discussed below). During the time the grantor/patient is cryopreserved, the MIFIT will make no distributions, nor will it have any income or expenses. The only asset it will hold is FIT Investments. Once the grantor/patient is revived, the Trustee will then redeem the shares of FIT Investments and receive cash back to fund the Trust. The Trust then will be administered for the revived individual.
The second component of the Multi-Investor Model is FIT Investments. FIT Investments is structured as a C-corporation. The only shareholders of FIT Investments are the MIFIT’s. Because the corporation is taxed as a C-corp, taxes are paid at the corporate level. Shareholders only pay taxes on dividends which are distributed to them. Directors of the corporation will be elected by the Trustees of the MIFIT’s and the Trust Protectors of the MIFIT’s. One of the key components of FIT Investments is that expenses (investment and administration) cannot be higher than 1.5 percent.
FIT Investments will invest all of the assets in a single pool – reducing the overall costs associated with investing. The corporation would not distribute any dividends to the shareholders (unless it became a legal requirement). There is a tax penalty imposed by 26 U.S.C.A. § 531 if the accumulated earnings of the corporation exceed $250,000. This will be avoided by: (i) Investing in assets that do not generate prohibited income; (ii) Using income to pay the investment fees and management fees; and (iii) Having the alternative to create multiple corporations structured in the same manner, but with different shareholders.
The corporation would authorize 1,000,000 shares. Each MIFIT, when funded, would purchase shares of the corporation. For example, assume the corporation has $1,000,000 in assets with 10,000 shares outstanding when Client A dies. Client A’s MIFIT is funded with $250,000. At that point, each share of the company is worth $100, so Client A’s MIFIT would purchase 2,500 shares. Now the corporation would have 12,500 shares outstanding. When Client B dies 12 months later, assume the corporation has increased in value from $1,250,000 to $2,500,000. Client B’s MIFIT is funded with 100,000. Each share is now worth $200, so Client B’s FIT would purchase 500 shares. Therefore, there is no advantage or disadvantage to being the first investor.