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Trust and taxing same...

Am trustee wherein the objective in setting it up was to provide what protection possible to beneficiary's inheritance from creditors in case a potential business failure also managed to take him down w/ it. This hasn't happened fortunately, and while things are currently looking much better, in general the individual is an most excellent professional in his field but not at all stellar in the finances so I'm interested in trying to hold and increase the principal of this trust until such time as he can no longer continue to practice. Being as at the moment there is no compelling need, it bugs me of having to distribute essentially all the growth of dividends, etc., income in order to avoid the onerous federal tax rates for trusts.

So, as that for leadin, are there alternatives that would not be taxable that have reasonable combination of risk/rewards that could be considered than anybody here can suggest? Or is it simply a futile objective to wish for given the tax law?

Reply to
dpb
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The first question is: is this an irrevocable trust? If so, you're likely stuck with the assets where they are. But perhaps there's the possibility of creating an intervening entity between the trust and the individual that would still provide protection for the distributed assets, but allow for taxation using the individual's brackets. One example would be an LLC where you have a small general interest as Managing Member and the individual owns most of the entity as a limited Member. I'd suggest meeting with an estate planner or attorney to investigate the possibilities.

Reply to
Tom Healy CPA

...[snip preamble for brevity]...

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Yes it is to the question...a case where everybody in the setup phase worried over the protection issue to the exclusion of considerations other than that (it appears to me now). Of course in their defense at the time that was a major concern it just worked out differently. Whether there would have been some other alternative at that time that would have served better in the eventuality I don't know but isn't of any use worrying over now.

Just wondered if there were any "loopholes" in the estate income categories that could be utilized or some such. I will when tax season is over talk to some folks. Thanks...

Reply to
dpb

Buy assets for the trust that maximize growth and minimize current income. For example there are growth stocks. Real estate might also be good for this. I'd avoid gold and antiques - if challenged they might be seen as too speculative.

Reply to
Stuart A. Bronstein

Invest trust assets in growth stocks. when sold their LTCG rate is same 15% as personal LTCG rate. Also buy Muniipal bonds. They currently yeild about 5% tax free, and some are staate-specifi tax free, and lately have capital appreciation of up to 10%.. A small amount of Qualified Dividend stocks. Real estate and gold have problems.

In other words, keep taxable income out of the trust.

ed

Reply to
ed

Muni bonds still seem scary to me. When the federal bailouts of states and public schools stop, if ever, muni bonds could take a dive.

Aren't qualified dividend rates going away in 2011?

Reply to
removeps-groups

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