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San Juan Basin Royalty Trust Message Board

  • andevenabs andevenabs Jan 22, 2006 10:06 AM Flag

    a newbie question here

    I understand that royalty trusts simply securitize an income producing asset and distribute the income and return of capital over a defined period.

    that said, if one was an income beneficiary of a trust (which means you cannot draw down principal except for trustee compensation) can the beneficiary get around this by investing in royalty trusts?

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    • That is a great question! It sure would seem that you may have found a way around the restriction of an income trust. I assume you are thinking along these lines - that you invest all the principal in royalty trusts. Why not - it would seem that since they are listed secuirities, there would be no restriction.
      Then, since by definition we expect say a SJT will eventually pay out everything and thus go to 0, then your trust would also have gone to 0.
      Of course, that may not be the best move but it sure looks like a way around a restrictive interest only trust.
      Lets here form a tax guy!

      • 1 Reply to coach3play4
      • exactly.

        We are currently income beneficiaries (and ultimately principal benficiaries, so no real malfeasance there)

        Now, I'm not advocating a huge weighting toward the royalty trusts, but a small percentage, say 10-15% sure would make a huge difference in our ability to utilize funds to source other investments.

        I was told that investing in CMOs whereby pre-payment of principal will not count. This might be the thing I'm looking for.

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