Trusts that may save money for grantors or beneficiaries

On Behalf of | Jan 16, 2015 | Trusts

As many Nevada residents may know, there are several ways to save money on taxes. In some cases, the family will pay a lower estate tax and, in others, the asset owners will owe less in income tax. Knowing the intricacies of such opportunities and using them may be beneficial.

Two trusts enable such savings. In the case where estate taxes are owed, the beneficiaries may benefit from an intentionally defective grantor trust. In this trust, the grantor retains ownership of a trust established to provide assets to beneficiaries after the grantor’s death. In this situation, the grantor continues to pay tax on the assets in the IDGT. This is particularly useful when the value of the assets will increase over time, and an IDGT keeps the value of the trust at the lower value that existed when it was established. It is an effective way to reduce estate tax.

The second type of trust achieves an opposite goal. Instead of lowering the estate tax, it lowers the amount of income tax the grantor must pay. The Internal Revenue Service recognized the incomplete-gift non-grantor trust in 2001 and, since that time, multiple cases have reaffirmed this recognition.

This trust is permitted by state statute. The ING trust makes it possible for a grantor to transfer ownership to the beneficiaries and reduce their tax burden. By relinquishing ownership of the assets, the grantor may save on income tax he or she would be obligated to pay without the trust.

Speaking with an attorney who may provide insight into the formation of such trusts might be beneficial in the estate planning process. This specific area of tax law may require the attorney’s guidance during trust formation.

Source: Forbes, “Might These Little-Known IRS-Recognized Trusts Save You Substantial Taxes?”, Todd Ganos, Dec. 26, 2014