Avoiding Taxes Via the Irrevocable Trust

Trusts and Taxes "Gift Transfers and Gift Tax Planning" An irrevocable trust could be used as a way to name beneficiaries and avoid estate taxes. Unlike a revocable trust, irrevocable trusts do not have to pay taxes. In this case, any assets that are placed in the irrevocable trust are no longer deemed to be assets of the settler; instead they are deemed assets of the trustee. The difference is that in a revocable trust, the settler can re-enter into the trust and have the assets retrieved.

In an irrevocable trust, this is not allowed. Creditors cannot retrieve assets of the settler in an irrevocable trust, as they can in a revocable trust. As Bay Financial Associates (2015) puts it, a revocable trust is like a "box with strings" on it -- and all one has to do is pull the string, and the box opens up. An irrevocable trust, on the other hand, has no strings attached. It is sealed up and assets cannot be retrieved by settler or creditor.

The terms of the trust cannot be changed: it "cannot be revoked, altered, amended, or terminated by the grantor" (Bay Financial, 2015). The legal title to property -- aka the principal -- is transferred from the grantor to the trustee. The trustee becomes the administrator of the property and is responsible for maintaining it as well. This will allow substantial estate tax savings, as the property will not be subject to them.

It is a lifetime gift that is a very appropriate strategy for doing what the client would like to do in this occasion, which is to avoid paying hefty taxes on the estate. The only catch is that once the trust is created, the grantor no longer has any claim to the property and the trustee is the one who is responsible for its upkeep. 9.

"Fairness of the Federal Estate Tax and Income and Principal in Fiduciary Accounting" One of the major arguments for repeal of the federal estate tax are that it "would spur the economy and lift burdens on owners of small businesses and farms" (Ebeling, 2015). This is the main reason because not many people actually pay the federal estate tax: only .2% pay it -- mainly because of the enormous exclusion amount that can be used "before the tax kicks in" (Ebeling, 2015).

Thus, the big push for repeal by Republicans last year was largely to show wealthy supporters that they were doing something to fight for them. Ebeling calls it "continuing the drumbeat." Nonetheless, the estate tax is a significant burden on those who have to pay it.

As Karen Madonia, CFO of Illco, testified before Congress, "an estate tax on her father's death would mean selling parts of the company (shutting down branches, laying off workers or liquidating inventory) to pay it" and that would surely have a negative effect on the economy; it would, however, feed the welfare/warfare state and keep only certain sectors of the economy in the money -- namely those who receive federal handouts and those who participate in the building of weapons and instruments of war and conflict (Ebeling, 2015).

The major reasoning for allowing transfers by the trustee in the Uniform Principal and Income.