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Can you use a Defective Trust to "Lock-In" the passing of Business
Interests?
Father is divorcing and will Re-Marry. His has promised the passing of
his business interest to his children. But there is always doubt.
I have heard a Trust can be defective for income or estate tax, but can
a Trust be defective for both? All that is needed is to keep the
father in the same position for income (where he has the right to do
whatever he wants with the income & the management of the companies).
We want to lock in the transfer at death, so as it cannot by changed
(like a Will or Living Trust).
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"CGS" <agnole@yahoo.com> wrote:
Can you use a Defective Trust to "Lock-In" the passing of
Business Interests?
Father is divorcing and will Re-Marry. His has promised the
passing of his business interest to his children. But there is
always doubt.
Probably. What do you mean by "defective"?
I have heard a Trust can be defective for income or estate tax,
but can a Trust be defective for both? All that is needed is to
keep the father in the same position for income (where he has
the right to do whatever he wants with the income & the
management of the companies). We want to lock in the transfer at
death, so as it cannot by changed (like a Will or Living Trust).
I don't see why you want a "defective" trust. What you want is an
irrevocable grantor trust. The extent to which that can be done
probably will depend on state law.
Stu
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Stuart A. Bronstein wrote:
"CGS" <agnole@yahoo.com> wrote:
Probably. What do you mean by "defective"?
However you lawyers write the Trust document, it would be defective for
Federal purposes. This would allow the Trust to be transparent to the
Grantor for all income/estate tax related issues...(I think)
I don't see why you want a "defective" trust. What you want is an
irrevocable grantor trust.
Never heard of it, but it sounds like the Ticket...
The extent to which that can be done
probably will depend on state law.
Stu
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"CGS" <agnole@yahoo.com> wrote:
Stuart A. Bronstein wrote:
However you lawyers write the Trust document, it would be
defective for Federal purposes. This would allow the Trust to
be transparent to the Grantor for all income/estate tax related
issues...(I think)
The times I've heard that phrase, it was to differentiate it from the
concept of a grantor trust, which is a trust which is treated as
owned by the grantor for all tax purposes.
In contrast a defective trust would be a trust that would not be
considered a grantor trust for estate tax purposes, but would be for
income tax purposes. Or vice versa. It is possible to do that, but
not for amateurs.
I don't see why you want a "defective" trust. What you want is
an irrevocable grantor trust.
Never heard of it, but it sounds like the Ticket...
Grantor trusts are defined by federal law. In particular, sections
671 through 679 if the Internal Revenue Code.
Stu
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CGS wrote:
Can you use a Defective Trust to "Lock-In" the passing of Business
Interests?
Father is divorcing and will Re-Marry. His has promised the passing of
his business interest to his children. But there is always doubt.
I have heard a Trust can be defective for income or estate tax, but can
a Trust be defective for both?
I think the word you're looking for (from the other replies),
is "disregarded" rather than "defective" or Stuart's "transparent".
It's possible. It's not easy, as I understand it, but there are
provisions for an irrovocable trust to still be a "grantor trust"
taxed to the actual grantor. I'm sure the trust agreement must
allow him to withdraw income from the trust, or it would be
taxed to the beneficiaries, or treated as a separate entity, instead.
--
This account is subject to a persistent MS Blaster and SWEN attack.
I think I've got the problem resolved, but, if you E-mail me
and it bounces, a second try might work.
However, please reply in newsgroup.
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"Arthur L. Rubin" <ronnirubin@sprintmail.com> wrote:
It's possible. It's not easy, as I understand it, but there are
provisions for an irrovocable trust to still be a "grantor
trust" taxed to the actual grantor. I'm sure the trust
agreement must allow him to withdraw income from the trust, or
it would be taxed to the beneficiaries, or treated as a separate
entity, instead.
That's one way, but it's not necessary. For income tax purposes a
grantor is taxed in trust income if, among other things
he has the power to determine to whom income should be
distributed, and then distribute it; or
he has the power to borrow, or does borrow, trust funds without
adequate security; or
trust income can be used to pay premiums on life insurance on the
grantor.
Stu
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