Could a Trust Be a Good Way for the Wealthy to Save on Taxes?

When you think of trusts, what comes to mind? While many people think of a financial account that is set up as part of an estate plan, there are a couple of little-known trusts that taxpayers, especially the wealthy, can use to help them save on their tax bill.

These trusts are perfectly legal and recognized by the IRS, but not a lot of taxpayers are aware of them. Both of these trusts revolve around the difference in ownership rules between estate tax/gift purposes and income tax purposes. So can these differences in ownership rules help taxpayers save money? Yes.

One of these trusts, know as the Intentionally Defective Grantor Trust (IDGT), is in many cases used by wealthy people in order to lessen the blow of the gift/estate tax that family members have to pay when assets are shifted from one generation to another. Essentially, it allows parents to give a gift to their children for gift/estate tax purposes, while they can still be considered as the owners of the trust as it pertains to tax purposes. This allows their children to inherit the assets at a much lower tax rate than what would otherwise be imposed at death.

 Another trust that can help you at tax time is the Incomplete-Gift Non-Grantor (ING) Trust. It actually is designed to do the opposite of an IDGT. Essentially the transfer of funds is not considered complete as far as estate tax purposes are concerned, but it is completed as far as income tax purposes are concerned. These means that the parents are no longer considered as the assets’ owners when it comes to income tax purposes. The trust becomes an actual taxpayer and has its own residence, which is actually in a state without income tax, as long as the state allows such a trust.

 Both of these trusts can be an effective away to save on your taxes, especially for people who have high value assets and who want to gift those assets to their children. If you want to learn more about these trusts and determine if one might be right for you, then give us a call at 1-877-CPA-2006, or click here to get in touch with us online.

 

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This transcript was generated by software and may not accurately reflect exactly what was said.

Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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